Retail Memo: Sacramento,California-based Raley's Testing New, Smaller Format 'Raley's Fresh Market' Banner Store in Oakdale, California

West Sacramento-based Raley's Family of Fine Stores is trying out a new, smaller-format (about 40,000 -to- 45,000 square feet) supermarket concept under the new "Raley's Fresh Market" banner in the northern San Joaquin Valley city of Oakdale, in Northern California's Stanislaus County, Natural~Specialty Foods Memo has learned. Previously the supermarket chain has only used the Raley's name on its superstore format stores.

Oakdale, which calls itself the "Cowboy Capital of the the United States" because it holds one of the largest annual rodeos in the U.S., as well as has the most national competitive rodeo champions in the nation, is a small city of about 20,000 residents, located right next door to Modesto, which has a population of about 210,000. Stanislaus County currently has a population of about 500,000. The three-county northern San Joaquin Valley region, comprisedof San Joaquin, Stanislaus and Merced counties, has a population of about 1.4 million residents.

As we reported in our Retail Whispers column on June 11, Raley's, which currently operates about 129 supermarkets and warehouse stores under the Raley's, Bel Air Markets, Nob Hill Foods, Food Source and now Raley's Fresh Market banners, is looking for new store sites throughout Northern California and in the Reno/Sparks/Lake Tahoe region in northern Nevada.

The new Raley's-owned store in Oakdale, called Raley's Fresh Market, is at 40,000 -to- 45,000 square feet much smaller than most of the modern day Raley's banner stores, which range from about 55,000 -to- about 75,000 square feet. It's also unique in that the "Fresh Market" banner store is located in a former supermarket building the retailer remodeled for its Oakdale store.

For example, nearly every new Raley's, Bel-Air, Nob Hill Foods and Food Source store the grocery chain has opened in recent years has been a brand new, built from the gound up supermarket, or in the case of Food Source, a discount warehouse format store.

The Oakdale store also is the first time Raley's has used the "Fresh Market" name along with its Raley's name on a supermarket.

The Oakdale store previously housed an independent supermarket named Oak Ridge Fresh Market, which was a spin-off by the owners of the building's previous grocer, Richland Markets, which built the building and operated a Richland Market banner supermarket in it for a number of years.

Richland Markets, a long-time family-owned area multi-store independent, has been selling off most of its seven supermarkets in the cities of Modesto, Turlock, Ceres and Oakdale over the last few years due to family succession and competitive issues, according to a Modesto-area food broker, and regular Natural~Specialty Foods Memo reader.

Just recently, Richland Markets agreed to sell two of its remaining three supermarkets to another locally-based multi-store independent, discount grocer Cost Less Foods, leaving Richland left with only its flagship supermarket in Turlock, which is a city of about 75,000, located 10 miles from Modesto, according to the local area food broker.

Richland Markets was one of the first retailers to expand into the natural and specialty foods categories in a serious way in the Northern San Joaquin Valley in the 1980's.

The decision to locate the store in a vacant supermarket building and to try out the new Raley's Fresh Market banner name was made for a couple of different but related reasons.

We've learned Raley's decided to acquire the vacant building this spring--the Oakdale Raley's Fresh Market just opened a few weeks ago--and turn it into a new format using the Raley's Fresh Market name for three primary reasons.

First, the store is located right across the street from a Save Mart supermarket. Savemart, which is headquartered in Modesto and operates supermarkets throughout the Central Valley under the Save Mart banner and warehouse stores under the Save Maxx banner--along with supermarkets in the San Francisco Bay Area under the Lucky banner (it acquired those stores in its 2006 acquisition of Albertson's, Inc.'s Northern California Division)--is the market share leader in the northern San Joaquin Valley.

When Save Mart acquired Albertsons Inc.'s Northern California stores in 2006 (close to 200 supermarkets), for the first time the Modesto-based chain entered Raley's home turf market of Sacramento. Prior to that, Save Mart had never opened a Save Mart banner supermarket in the Sacramento market, even though its only about 65 -to- 70 miles from Modesto. The retailer always had stores as close as 20 miles from Sacramento, so going into Sacramento would not have been unusual.

Additionally, Raley's only operated a handful of stores (literally two or three only) in Save Mart's home market region of Stanislaus, San Joaquin and Merced counties.

Further, Raley's and Save Mart are partners in a grocery distribution warehouse located in the Northern San Joaquin Valley city of Lathrop. The two chains even shared the same private label, Sunny Select, as their respective store brand, until Raley's started converting most of its store brand items to the Raley's label a couple years ago.

Raley's also uses the Nob Hill Foods brand for store brand specialty and premium foods items. Raley's still sells items in certain categories under the Sunny Select brand. Save Mart continues to use it as its primary store brand across all categories.

However, with Save Mart's arrival with multiple supermarkets in the Sacramento regional market following its acquisition of Albertsons Northern California Division, Raley's got its competitive juices flowing and decided to hit Save Mart a bit harder than in the past in its home base. In the last year, Raley's has opened brand new Raley's banner superstores in Modesto and in Riverbank, which is a right next door to both Modesto and Oakdale. Raley's now has three Raley's superstores in Modesto, one in Riverbank and now the Raley's Fresh Market in Oakdale.

The Oakdale location right across the street from the Save Mart supermarket was too good to pass up for Raleys as part of its upping the competitive ante on Save Mart on its home turf.

Second, since the Raley's Fresh Market store building is smaller than a normal Raley's banner superstore (and is more a supermarket), Raley's decided it would have to limit the assortment it normally puts in its Raley's banner stores. Therefore, the retailer wanted to differentiate its name by adding "Fresh Market" to it, among other reasons fro choosing the name.

Additionally, Raley's wanted to go head-to-head with the Save Mart across the street on price and value, which meant offering lower everyday prices than it does in its Raley's superstores, along with deeper store-specific promotions. Therefore, the format tweaks required by the smaller store footprint, along with the name change, are allowing the retailer to focus more on price and price promotions in the Raley's Fresh Market in Oakdale, without creating confusion in terms of its merchandising and pricing in the Raley's superstore format stores.

Lastly, since the store is in a smaller footprint as well as existing building, its overhead and operating costs are much lower for Raley's than is the case with its newer Raley's banner superstores, which at about 55,000 -to- 70,000-plus square feet not only are bigger, which consumes more energy, but also feature lots of refrigerated and frozen cases in them.

Therefore, it can offer lower everyday prices and hot promotions, which it is, designed to undercut the Save Mart across the street. In general, Save Mart supermarket prices tend to be a bit lower everyday than Raley's supercenter prices are.

Since the supermarket's previous tenant, the Oak Ridge Fresh Market, used "Fresh Market' in its name, Raley's also decided to use it as part of its new banner (or hybrid Raley's banner perhaps is a better way to phrase it) because the supermarket chain felt it allowed for some consistancy in the tranistion from the previous grocer to Raley's.

The Oakdale Raley's Fresh Market is a conventional supermarket essentially with a few twists. For esxample, it puts a much stronger emphasis on fresh foods--meats, produce, prepared foods--than a traditional 40,000 square foot supermarket does.

Price and heavy promotion also are part of the store's focus. Since opening, the store has been conducting numerous hot, store-specific promotions, which have included heavy couponing, free gasoline cards to customers who spend a certain amount of money per-purchase, deep discounts on fresh foods and groceries, and other heavy price and value-oriented promotional campaigns.

The Oakdale Raley's Fresh Market also is offering customers a $5 back on every $25 spent promotion currently, along with coupons for free items like fresh eggs, meats, produce items and other food and grocery items throughout the store.

Save Mart hasn't stood still though. It recently fired back with a thick coupon book specific to the Oakdale Save Mart location across the street, offering higher coupon values on many of the same items the Raley's Fresh Market offered in its coupon book. Save Mart also last week launched a special promotion in which it gave a gas rebate of $40 in the form of a gas card to the first 500 customers to spend $40 on groceries in the store.

Raley's has now come out with another thick coupon book for the store; which no doubt will be met by another similar one from Save Mart. Oakdale shoppers, and from what we are told those from surrounding towns, are definately benefiting from the competition between the two across the street situated grocers.

A Raley's spokesperson recently told Natural~Specialty Foods Memo it's possible the grocery chain may open more Raley's Fresh Markets of approximately the same size as the Oakdale store in other cities, in vacant supermarket buildings. However, she said the Oakdale store currently isn't any sort of test for rapidly rolling out a smaller-format, Raley's Fresh Market banner chain of stores anytime soon. However, the retailer isn't ruling out more, similar stores.

Raley's and Save Mart are far and away the current market share leaders in their respective headquarter regions. Additionally, Save Mart, with its acquisition of Albertsons Northern California divsion, the stores of which it now operates under the Lucky banner, is the number two market share leader in the San Francisco Bay Area, after number one Safeway Stores, Inc.

Raley's is a pioneer nationally in natural and specialty foods merchandising. It was one of the first supermarket chains to sell organic food and grocery items in a big way, as well as one of the first to build large store-within-a-store natural foods departments in its Raley's banner superstores.

Those departments include natural and organic foods and beverages, dry grocery, perishable and frozen, vitamins and supplements, huge bulk foods sections, natural body care sections, and natural products in numerous other categories.

Raley's also is a premier specialty, ethnic and gourmet foods and grocery products retailer, in its Raley's, Bel-Air and Nob Hill Foods banner stores. In recent years, its introduced its own gourmet foods store brand under the Nob Hill Foods label, which it continues to expand into dry grocery and perishable categories.

Save Mart is more of a conventional supermarket operator than Raley's. However, over the last few years the retailer has gotten deeper into natural and specialty foods, including putting natural and organic food and grocery store-within-a-store departments in many of its newer stores.

With it's acquisition of Albertsons Northern California Division, most of thes tyores of which are located in the Bay Area, Save Mart also has become far more of a natural, specialty and ethnic foods retailer since those stores, which it operates under the Lucky banner, serve a Bay Area customer base in which items in these categories are in a high demand.

Raley's however remains much more of an upscale grocer than Save Mart in the main, including its focus on the natural and specialty foods segment. However, it isn't a specialty grocer. Rather, its position across all its banners--the Raley's and Food Source retail brands more so than the Bel-Air and Nob Hill banners though--is as a value grocer, specializing in quality and premium foods as part of its everyday proposition ,as stores shoppers "should choose" to do their primary shopping because of the combination value and specialty propositions.

With the Raley's Fresh Market experiment in Oakdale, California, the retailer is showing it can up that value proposition when it desires or feels the need to, as well as maintain its specialty and natural foods category focus along with it.

Local Foods Retailing Memo: Sacramento, California-Based Raley's Supermarket Chain 'Doubling-Down' On its Local Foods Merchandising and Marketing

Sacramento, California-based family-owned regional supermarket retailing powerhouse Raley's is expanding it's already aggressive local foods merchandising and marketing programs in a number of ways, clearly visible in its stores and in it's multi-media advertising.

Among the increased local foods merchandising and marketing efforts the 129 store regional supermarket chain is making include:

>Labeling all foods grown or produced within a few hundred miles from its Sacramento, California base with eye-catching "locally-grown" and "locally-produced" shelf signs. This includes fresh produce, meats, perishables and dry grocery items, including natural, organic and specialty foods offerings.

>Labeling foods grown and produced in California, but farther than a few hundred miles away from its Sacramento base, with "Grown in California" shelf signage.

>Increasing the number of exclusive deals it signs with local farmers, buying the local growers' entire fresh produce crops, and touting the locally-grown fresh fruits and vegetables by building massive displays in store produce departments, running large front page ads for the local items in the retailer's weekly newspaper advertising circular, and often running full-page color ads in the major daily newspapers in the grocer's market regions featuring such local produce such as corn on the cob, strawberries, melons and other fruits and vegetables grown by local farmers.

Raley's contracts for the entire crop of a given grower (which can be expensive), which are grown by top-quality farmers, because locally-grown produce is now so popular in California that it gives the retailer a major competitive advantage to do so. It touts not only the local aspect of the fresh produce items, but the exclusivity to Raley's as well.

>Working closer with local natural, organic and specialty foods' producers and vendors by authorizing their local food and grocery products in the stores, promoting the local items more extensively, and partnering with the local producers at special events like community food fairs and charitable events designed to increase awareness and sales of locally-grown and produced food products.

>Creating more "local foods" in-store displays and cross merchandising the local items both by meal complementary merchandising techniques and by local region.

Offering locally-grown fresh produce at reasonable prices rather than doing what some food retailers do and selling them for a premium.

Conducting more frequent in-store local foods sampling events, often having numerous local foods producers, including farmers, do the tastings in the stores at the same time.

Raley's, which is the food and grocery sales market share leader in the Sacramento region market, and has stores under the Raley's, Bel-Air Markets, Nob Hill Foods and Food Source banners elsewhere in Central and San Joaquin Valley, north of Sacramento, in the San Francisco Bay Area and in Nevada, has long positioned itself--and is--as the local grocer, even though the chain has grown to 129 stores and nearly $4 billion in annual sales.

Along with its extensive--and increased--local foods merchandising and marketing commitment, the supermarket chain has a charitable foundation that gives millions of dollars to charities in Sacramento and the other Northern California regions where it operates stores.

In addition to the foundation, the corporation itself donates millions of dollars in cash and in-kind food donations to non-profit groups, charitable organizations and food banks and pantries throughout Northern California and Nevada.

The grocer also has a program in which customers can select a card in either $5, $10, or $20 amounts at each checkout lane as a way to make a donation to local food banks. Shoppers select the card while waiting to get checked out, give it to the store clerk as she rings up their purchases, the clerk scans the card, and the amount goes into a special account, 100% of which is donated to programs to feed the hungry. Raley's matches a portion of the total funds donated by customers each year.

Raley's also funded Sacramento's fairly new state-of-the-art baseball stadium for the city's super-popular Sacramento Rivercats minor league baseball team. The baseball stadium, called Raley Field, is packed every night during the season with families who as far as they are concerned believe the local minor league team is every bit as enjoyable to watch as a major league baseball team is.

Raley's runs all sorts of promotions in conjunction with the team and stadium. The grocer also gives out hundreds of tickets during the season to lower income families and children. To say the River Cats are a hot ticket is the understatement of baseball season. They draw more fans on many nights than a lot of major league baseball teams in parts of the U.S. do.

Raley's was a first-mover in California and national food retailing in terms of getting into local foods merchandising and marketing in a serious and major way. The added efforts and programs started by the grocer a few months ago and increasing even more recently are positioning the chain as one of the foremost local foods food retailers in the U.S.

It's paying dividends for the supermarket chain as well; that's why Raley's continues to add more elements and aspects to its local foods program.

Others like Safeway Stores, Inc. Whole Foods Market, and numerous regional chains, multi-store independents, single-store independent grocers and natural foods retailers also are into local foods merchandising in a big way in California.

In fact, those few food retailers who aren't "going local" are really at a big disadvantage, as most grocers and California market observers will tell you the local foods movement is growing much faster than the organic foods movement is in the Golden State.

In part that's because the organic foods movement is more mature, and still is growing considerably. But that's really only a small part of the equation. the major reasons the "buy local" is growing faster than the organic consumer movement right now in California is because it hits on so many hot buttons important to the state's consumers. These include freshness of product, price, environmental concerns, food safety concerns, desire to support local agriculture, and many more.

Raley's own research identified this growing movement some time ago, and that along with the best indicator, sales of locally-grown and produced food products in the grocers stores, is encouraging the family-owned supermarket chain to grow its local foods merchandising and marketing programs even more.

Retail Memo: Raley's Attempts to Come 'Full-Circle' With New Private-Label Natural and Organic Products' Brand

Sacramento, California-based regional supermarket chain Raley's is rolling out its own quasi-store brand of organic and natural grocery, fresh foods and household cleaning products today in its 120 Raley's, Bel-Air Markets and Nob Hill Foods banner stores located in Northern California, Central California and Nevada.

The line of organic and natural products is branded under the Full Circle label, a completely new private-label brand for the family-owned supermarket chain. The Full Circle brand, which contains about 120 items to start at Raley's (there are about 500 items in the brand) with more skus coming soon, will be represented througout the store. product categories include grocery, produce, fresh meat, seafood, household cleaning products, and vitamins and dietary supplements, says Raley's spokesperson Amy Johnson.

Full Circle is what we define as a turnkey or quasi store-brand for mid-sized, regional supermarket chains such as Raley's. The brand was created and is marketed by the product developer and cooperative wholesaler Topco Associates and is designed to serve as a grocer's regionally-proprietary natural and organic products' store-brand.

Only one regional chain in a market area is licensed to sell the brand. For example, Raley's will be the only grocery chain in Northern and Central California to merchandise Full Circle products in its stores.

For all intents and purposes then it serves as a store brand in the retailer's market region. It's sort of a cross between an actual retailer-created brand and a national brand in that it is proprietary yet has some brand equity by virtue of the fact that it's sold by other chains outside the retailer's market area. In the natural and organic grocery categories its a way for a medium-sized grocery chain to acquire a multi-sku and multi-departmental store-brand without having to create one from scratch, which isn't feasible in most cases.

Other regional chain's merchandising the Full Circle natural and organic products' brand include: Arizona-based Basha's; Stater Bros. in Southern California; Giant Eagle Foods, which has stores in Ohio, West Virginia, Maryland and Pennsylvania; and Bi-Lo Supermarkets, which operates in the Carolinas, Georgia and Tenessee.

About the brand

Full Circle brand organic products are U.S. Department of Agriculture certified organic, produced using sustainable farming methods, pesticide and synthetic fertilizer-free, and grown without the use of any artificial antibiotics or growth hormones (the fresh meats and produce). Additionally, none of the organic food items come from genetically modified seeds or have been exposed to irradiation, according to Johnson.

The Full Circle natural products' items adhere to the following criteria: They are as close to a "natural" state as possible; are free of artificial ingredients, colors, preservatives and other chemicals; have minimal if any refined ingredients, and are packaged in recyclable packaging. All of the Full Circle organic items have the same product attributes as the natural products, in addition to the organic criteria listed above, Johnson added.

Further, the fresh seafood items carrying the brand are wild-caught and feature the Marine Stewardship Council logo on each package. The council is a third-party environmental group that certifies high-environmental sustainability standards for fisheries. The houshold cleaning products contain no toxins, and the vitamins and dietary supplements are free of chemical solvents or stimulants.

Raleys a pioneer in natural and organic products categories

Raley's is a pioneer in the natural and organic products' categories in the U.S. The retailer created store-within-a-store-style natural foods departments featuring natural and organic grocery products, beverages, vitamins, dietary supplements and non-foods products over 30 years ago in the 1970's. It was one of the first chains in the U.S. to make this level of commitment to the categories. In its new stores, these departments can be as big as 10,000 square feet. The Full Circle brand items will be integrated throughout the stores however, rather than placed in the natural foods departments, with some exceptions.

The Sacramento-based grocer also was one of the first chains in the U.S. to sell organic produce and to have all of its fresh produce certified as having "no detectable" levels of pesticide residue by a third-party private lab. The retailer continues third-party testing this policy today and has expanded it from a portion of its produce items to all those it sells.

Raley's, which does about $3 billion a year in gross sales in its 120 stores, has an extensive store brand program across all store departments which includes a value line, a mid-range line, a premium line and an artisan, specialty foods brand called Nob Hill Foods, which also is one of its four store banners.

[Raley's four retail store banners are: Raley's, 60,000 -to- 80,000 square foot superstores with an upscale flair; Bel-Air, 30,000 -to- 55,000 square foot supermarkets with slightly more upscale positioning than the Raley's banner; Nob Hill Foods,which vary in size from about 30,000 square feet (older stores and those in smaller communities) to about 65,000 square feet (newer stores), and with the exception of a few older stores are the grocer's premium, upscale store format; and Food Source, which is a price-impact warehouse store format.]

Three of the four banners--Raley's, Bel-Air Markets and Nob Hill Foods--all feature extensive selections of natural, organic, specialty, ethnic and gourmet grocery and fresh foods products, along with non-foods items in all five categories.

All three formats are positioned as primary grocery shopping venues but with "More"--which are the upscale elements and product selections listed above. Even its Food Source warehouse stores carry far more natural and organic products than the typical warehouse format stores do. The grocery chain's positioning statement is: Celebrate Food. Celebrate Life. Many observers refer to Raley's as the "West-Coast version of Wegmans," the innovative and popular upscale supermarket chain based in the eastern U.S. Of course, in Northern California they call Wegmans the "East- Coast version of Raley's."

Even though Raley's is a national pioneer in natural, organic and specialty products sales, and has long had an extensive range of store brands, it has come rather late to the game (especially for its positioning) to the merchandising of "its own" natural and organic products brand--Full Circle. Even though not quite all its own in terms of the brand's creation, its pretty close. (Perhaps Full Circle is a metaphor of sorts for Raley's, as well as a brand, in that the chain is coming back full circle to its roots as a natural products' category retail leader of sorts?)

For example, Safeway Stores, a major competitor in Northern and Central California created its popular O' Organics brand of grocery products over a year ago. The line now has over 300 items in it and had first-year sales (2007 was its first full year) of $300 million dollars. Of course, those sales represent the brand's presence in over 1,700 Safeway-owned stores in the U.S., a luxury Raley's doesn't have with 120 stores.

Raley's has historically been far ahead of Safeway--and has generally been the Northern California supermarket leader--in the natural and organic products' category. So the fact the grocer is just coming out with its own brand of natural and organic products now has been a suprise to many industry observers and competitors. Of course, with Safeway's major push into its Lifestyle format its become a category leader in its own right in the last five years.

Raley's coming 'full-circle' with new Full Circle brand

However, the Full Circle brand is here, and Raley's store associates began stocking the shelves and perishables cases with the products in its 120 stores today. The grocer's marketing philosophy behind the merchandising of the brand is that it believes it can use it to further leverage its positioning in the healthy and premium foods segments, compete with rivals like Whole Foods Market, Inc., Safeway and others who are big in the natural and organic products' categories, and add significant store sales due to the fact that the organic category has been growing at over 20% annually for the last five years, and will continue to do so for a number of more years to come.

Store or private-label organic products' brands also generally bring retailers higher gross margins than manufacturer brands due to the following facts: the cost of goods is lower, there is no middle man (a third party distributor who takes a cut), and marketing costs are lower because the retailer can use its existing media and in-store merchandising vehicles to promote the organic brand.

Store-brand organic and natural products' mega-trend

As we've written about here often, there's a mega-trend among national and regional food retailers to create and market store or private-label organic products' brands. In addition to Safeway Stores, Inc.'s O' Organics brand, which the chain is growing far-beyond its current 300 items, Kroger Co. also has an extensive organic grocery products' store branded line, in addition to a growing private-label natural products' brand. Costco Wholesale also is a major player in store brand organic and natural products with its Kirkland brand. Costco even does co-branding with major organic foods manufacturing companies.

Smaller regional chains like Publix and Wegmans also have private-label organic products' brands and are in the process of growing the number and variety of skus they offer under their respective brands. Other food retailers like Trader Joe's and Tesco's new Fresh & Easy Neighborhood Market stores are selling nearly all of the natural and organic grocery products in their stores under their own brands, offering only a limited selection of manufacturer branded items and lines.

For Raley's, the Full Circle brand should help boost the grocer closer to the top-tier of natural and organic products' category retail leaders in its market. The competion in Northern California and Nevada today is much stronger in the categories at retail than it was just ten years ago however.

For example, Whole Foods Market has 25 stores in Northern California and plans to build at least another 20 in the next four years. Additionally, Safeway is becoming a major organics category leader as it continues to develop its Lifestyle format stores in the region, adding more and more O' Organics items across all store categories.

Further, Fresh & Easy Neighborhood Market is coming to the region with 18 stores in late 2008 and 2009. Trader Joe's continues to built new stores throughout Northern California as well. Costco continues to expand its private-label natural and organic products' selection in its local stores as well. Even Long's Drugs, a Northern California-based national drug store chain created an organic and natural products' grocery brand called Walnut Acres last year which it is selling in all of its stores in the region at discount prices.

On top of all this competition there's a myriad of multi and single store independent supermarkets and progressive natural foods stores in the region which offer extensive selections of organic products, some even having their own private labels, or buying a control natural and organic brand from their wholesalers, which is a scheme similar to what Raley's is doing with the Full Circle brand.

Raley's is playing catch-up ball with chains like Whole Foods, Safeway and others in Northern California when it comes to having its own (or quasi-own) organic products brand. However, the grocer also has a strong core of natural and organic products' customers--and as we mentioned earlier has been selling manufacturer branded organic foods and grocery products since the 1970's, long before most other supermarket chains were doing so. As such, while it is a catch-up game to be sure, the Full-Circle line should be a net positive for Raley's, especially in light of its positioning as a leader in specialty and natural foods and upscale merchandising.

There's nothing wrong with a grocery chain trying to come "full-circle," especially when they're on trend.