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.

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.

Tesco Fresh & Easy Update: Las Vegas

Five Fresh & Easy Markets Open Tomorrow In Las Vegas

Tesco Fresh & Easy Neighborhood Markets CEO Tim Mason (right) and store manager Pablo Artica (left) opened the Glassell Park neighborhood Fresh & Easy market in Los Angeles on November 8. It's on to Las Vegas tomorrow for the Fresh & Easy team. (Courtesy AP.)

Tesco will open it's first Fresh & Easy Neighborhood Markets outside of California tomorrow morning, when five of the convenience-oriented fresh food and grocery stores open in the Las Vegas, Nevada metropolitan region.

The opening of the five Las Vegas stores all on the same day come just a week after Tesco held the grand openings for six Fresh & Easy markets in Southern California on November 8. Those now opened stores are in the cities of Los Angeles, Anaheim, West Covina, Arcadia, Upland and Hemet.

The locations of the five Las Vegas stores opening tomorrow at 10:00AM are:

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

Tesco will be offering a full day of grand opening events at each location tomorrow at 10:00AM. There will be food and beverage samplings, entertainment, promotions and other opening-day excitement, according to a Tesco spokesperson.

Like the six stores that opened last week in Southern California, the Las Vegas region stores average about 10,000 square feet of retail selling space. Each store will employee about 20-30 retail associates, according to Tesco.

Fresh & Easy could do well in fast-paced Las Vegas, which is a 24-hour city and one of the fastest growing metropolitan regions in the U.S. It's residents work 24/7 in the gaming, entertainment and other industries, and should find the Fresh & Easy format, which features fresh, prepared and heat & heat foods, along with basic and specialty grocery and perishable products, conducive to their time-pressed lifestyles. The small format stores also allow for quick in-and-out shopping.

One unique in-store feature many retail food stores in Las Vegas have are slot machines and other gaming devices. Gambling is legal in the city and many supermarkets, convenience stores and gas stations take advantage of that fact by locating slot machines in their stores. We asked Fresh & Easy marketing director Simon Uwins via his blog yesterday if the Las Vegas Fresh & Easy stores will have slot machines located inside them. However, as of 8:00PM tonight we haven't heard back with an answer. We suspect he's rather busy in Las Vegas about now, getting ready for tomorrow morning along with the rest of the Fresh & Easy team.

More Southern California stores coming soon

In addition to the six Southern California stores opened on November 8 (one store, in Hemet, actually was opened a week earlier) and the grocery markets opening tomorrow in Las Vegas, Tesco will open a new Fresh & Easy in the Southern California city of Chula Vista (@ 865 E. H street) on Friday, November 16. Chula Vista is in the far southern portion of California, below San Diego and near the Mexican border.

Additionally, on November 28 two more stores will open in Southern California--one at 23719 Moultan Parkway in Laguna Hills, and the other at 5615 Woodruff Ave., in the city of Lakewood. With the six stores currently open in Southern California, and the additional three opening in the next couple weeks, Tesco will have nine Fresh & Easy grocery markets operating in the region by the end of November. More stores are scheduled to open in Southern California in December.

First Arizona stores to open on December 5.

The first Fresh & Easy grocery markets in Arizona will open in early December. four stores will open in the cities of Mesa and Chandler on December 5. This has been confirmed by a Tesco Fresh & Easy Neighborhood Markets spokesperson.

Additionally, Tesco hopes to open a couple more Fresh & Easy stores in Arizona before the end of the year. All told, the company has a goal of having about 27-30 of the convenience-oriented grocery stores operating in Arizona by the end of 2008. Most of the stores will be in the Phoenix metropolitan region.

Northern California in 2008

Tesco also has plans for stores in Northern and Central California. As we've reported, the retailer has secured it's first location for a Fresh & Easy market in Northern California in the Bay Area city of San Jose. That store will be located on Bird Avenue in San Jose in a former Albertsons' supermarket building which Tesco will renovate. The store is slated to open in early to mid 2008. Tesco also is in negotiations with a shopping center owner to obtain a lease on a building in Danville, which is an upscale community in the Easy Bay Area.

Company executives are talking with shopping center management firms, developers, city officials and others all over the nine county Bay Area in their search for multiple locations for Fresh & Easy stores for 2008. In addition, Tesco is negotiating with a shopping center owner in Bakersfield, in Central California, to locate it's first Fresh & Easy store in the middle of the state. Fresh & Easy representatives also are looking for store locations throughout the Sacramento region, as well as in the Central Valley cities of Stockton and Modesto, according to our commercial real estate, city government and other sources.

We've also have been told by a reliable source that Tesco is looking to locate a smaller version of its large 820,000 square foot distribution center (which is located in Riverside, Southern California), in Northern California, to serve it's eventual Fresh & Easy grocery markets in the region. This smaller distribution center would serve Fresh & Easy stores located in the Bay Area, Northern California and the Central Valley.

We've heard various numbers, but the goal of having about 100 Fresh & Easy markets in the next two years in Northern and Central California is the number we're hearing most often from our most reliable sources. Stay tuned. For now, it's on to Vegas for the Fresh & Easy team.

Fresh & Easy Update

British Grocer Marches North: Tesco to Open First Fresh & Easy Neighborhood Market in Northern California in San Jose in Summer 2008

Natural~Specialty Foods Memo (NSFM) was one of the first publications to report that UK-based Tesco was planning to branch out from Southern California, Arizona and Nevada to Northern California with its Fresh & Easy Neighborhood Market format stores.

We've now learned from our real estate and other sources that Tesco is planning to open it's first Fresh & Easy store in Northern California's famed Silicon Valley sometime in the summer of 2008. The store will be located in a former Albertson's supermarket building in San Jose's Willow Glen neighborhood.

The former Albertson's store, which was closed along with 36 other underperforming stores in Northern California in August 2006, is located at 1409 Bird Avenue in San Jose. Tesco has confirmed it will be renovating the store and locating a Fresh & Easy Neighborhood Market at the site in mid-to-late 2008. Our sources tell us it will likely open in the summer of 2008. Tesco will completely renovate the former Albertson's store to fit the needs of its Fresh & Easy upscale, convenience-type format.

The shopping center where the former Albertson's store is located is managed by San Diego, California-based Asset Management Group. The commercial property manager has been trying to get a retail food store into the building since the Albertson's closed in August 2006. The firm was in negotiations for some time with local, muti-store independent Zanotto's Markets (based in nearby Scott's Valley, California), who was interested in leasing the building and putting a store there. However, Asset Management decided to go with Tesco instead.

This will be Tesco's first Fresh & Easy Neighborhood Market in Northern California. The retailer is scheduled to open it's first six of the 100 stores it currently is either building or has in the pipeline on November 8. All six of the stores are in Southern California.

Natural~Specialty Foods Memo (NSFM) has identified (and Tesco confirmed) the specific locations of three of those six stores. You can find out those specific locations by reading our Thursday, October 11 story here and our Friday, October 12 story here. Additionally, Tesco has formally announced the location of one of the six stores to open on November 8. That store is in Upland, California (San Bernardino County). The store is located on Eighth Street & Mountain Avenue. Today Tesco announced the specific locations of the remaining two stores to open on November 8. Those two stores are in the Glassel Park/Eagle Rock neighborhood in Los Angeles and in Hemet, a city in the Southern California desert region. All six stores will open at 10:AM on November 8.

Tesco's Fresh & Easy Neighborhood Market format stores average about 10,000-13,000 square feet. The convenience-oriented stores feature an assortment of Tesco private label upscale prepared foods (including many grab-and-go items), specialty, natural and basic groceries, fresh produce, meats, perishables and other offerings in a format which puts an emphasis on quality and convenience for shoppers.

Tesco's entry into San Jose in Northern California's Bay Area in the Summer of 2008 should be interesting. The Bay Area is a very upscale food retailing market, with Safeway Stores, Whole Foods Market, Inc., Trader Joe's and many upscale independents all currently building new stores in a fairly rapid clip.

The upscale, convenience-oriented Fresh & Easy format will be most similar in the Bay Area market to Trader Joe's in size and product offerings. However, many observers believe it will take some market share from Safeway with its upscale, fresh food offerings, which has been an area Safeway has been focusing on for the past few years (and currently focusing more on) with its Lifestyle format. In fact, Safeway CEO Steve Bird has said the Pleasanton, California-based chain has been tracking all of Tesco's movements regarding its Fresh & Easy store locations, demographics and merchandising, and that Safeway is prepared to enter the market with its own convenience-oriented stores if Tesco proves successful.

We will reserve judgement however on the effect the Fresh & Easy stores will have on Safeway--and other upscale retailers in the region for that matter--for a few reasons. First, it will take a serious critical mass of Fresh & Easy stores in the Bay Area (and elsewhere in Northern California) to hurt Safeway, which is the region's market share leader. Second, Trader Joe's and Whole Foods are extremely popular natural and specialty-oriented retailers in the Bay Area. Both chains are building larger and more lifestyle-type stores (as is Safeway) in the region. These three upscale chain's stores are getting more interesting in terms of product selection and other features with each store new store built.

Further, Trader Joe's stores are already smaller than supermarkets and convenient to shop in. Additionally, Whole Foods has a prototype convenience-oriented format called Whole Foods Express, which they wouldn't hesitate to roll out in the Bay Area (where the grocer is in the process of building at least 20 new supernatural lifestyle stores over the next couple years) if they feel the heat from the Fresh & Easy format. Whole Foods, Safeway, Trader Joe's and the others mentioned (plus others) have strong brand equity and shopper following in the Bay Area. Tesco will need to create this same equity and shopper loyalty to succeed in the region.

All three--Safeway, Whole Foods and Trader Joe's--will be far from a pushover for Tesco or any other retailer starting-up in the market. The Bay Area also has numerous very sophisticated upscale independent retailers. Mollie Stone's, Andronico's, Lunardi's, Cosentino's, Draeger's, Zanotto's (and a few others) are all multi-store food retailers with stores throughout the Bay Area. These retailers offer various sized stores and do very sophisticated merchandising of upscale fresh, prepared foods and natural and specialty products.

The Bay Area is a sophisticated consumer market for fresh foods as well as natural and specialty foods. More so overall than Southern California is in many ways. Tesco will have a number of different challenges--merchandising, shopper loyalty, political and others--than the chain is going to have in Southern California, Arizona and Nevada, its first three target market regions.

We expect Tesco to build numerous Fresh & Easy stores in the Bay Area now that they have decided to open the San Jose store. This is the chain's stated strategy--to create a critical mass of stores in whatever regions they enter--and also is needed from the standpoint of logistics, marketing and advertising.

Logistically, Tesco's new distribution center is located in Riverside County, in Southern California. That's about an eight to 10 hour one-way trip to the Bay Area in a semi truck and trailer. The more Fresh & Easy stores Tesco has to deliver to the more economically efficient logistics They will have. The same for marketing and advertising. Print and radio ads for example cost a retailer as much for one store as they do for 50 stores. As Tesco's U.S. CEO for Fresh & Easy stores, Tim Mason, has said, the company plans on following a "Starbucks like" critical mass store location philosophy.

We will be observing this development closely--as we're sure Northern California retail food chains and independents will be, including those in the traditional convenience store industry.

What's On-Tap: Fresh & Easy Neighborhood Markets: The first six Fresh & Easy Neighborhood Market stores to open will all be in Southern California. Those six stores will open at 10:AM on November 8, 2007. The stores are located in the Southern California cities of Los Angeles, Anaheim, West Covina, Upland, Arcadia and Hemet. Each store will have a five day grand-opening beginning at 10:00AM on November 8. The grand openings will include numerous in-store activities, food and beverage tastings, promotions and other special events. Store openings in Arizona and Las Vegas, Nevada (in addition to more Southern California store openings) will follow shortly after the first stores open on November 8, 2007

Retail Memo: Breaking News: Tesco's Fresh & Easy Confirms it will Open 18 Stores in San Francisco Bay Area

As our regular readers know, we were one of the first publications to report and write about Tesco's Fresh & Easy Neighborhood Market's plans and strategy to launch a retail invasion into Northern California, with its small-format, convenience-style Fresh & Easy grocery markets.

We can now report that Fresh & Easy Neighborhood Market has formally announced and confirmed 18 "done-deal" store locations in the San Francisco Bay Area region of Northern California.

Those Bay Area store locations are:

San Francisco (2 stores), San Jose (2 stores), Hayward (2 stores) and Antioch (2 stores). Additionally, single-stores will be opened in the Bay Area cities of Oakland, Concord, Walnut Creek, Danville, Oakely,Vallejo and Farfield. These seven cities (and stores) are all located in the East Bay Area.

Further, single Fresh & Easy stores will open in the Bay Area cities of Mountain View, Sunnyvale and Napa. Mountain View and Sunnyvale are just a few miles from San Jose in the South Bay Area; Napa is about 30 miles north of San Francisco in the North Bay Area.

Fresh & Easy also will open four stores in the Sacramento metropolitan region. The grocer has applied with the state of California for liquor licenses for these new stores. Two of the stores are located in Sacramento, the other two in Folsom, which is right next door to Sacramento.

The locations of these stores are:

Sacramento:

>3311 Northgate Blvd.

>3615 Bradshaw Road

Folsom:

>25000 Blue Ravine Road

>9522 Greenback lane

Fresh & Easy Neighborhood Market isn't confirming the four Sacramento region stores at this time.

We identified most if not all of these cities in previous pieces. Additionally, Fresh & Easy is looking for more locations in the Bay Area and elsewhere in Northern California for its grocery stores. Some of those locations are in these same Bay Area cities, others are in other cities in the region.

Additionally, as we reported over a month ago, Fresh & Easy plans to build a distribution center in the Northern Central Valley city of Stockton. Stockton is about 30 miles from Sacramento and about one hour from San Francisco. The location is well situated geographically to serve the retailer's Northern California stores as far north as Napa and as far south as Fresno.

As we've reported before, Fresh & Easy would like to have as many as 40 -to- 50 grocery markets in Northern California by the end of 2009. These first 18, which are far from the only stores the retailer will open in the region, should begin opening in mid-to-late 2008, with many of them not opening until 2009.

Eventually, Fresh & Easy plans to have stores throughout Northern California, primarily in the Bay Area and Central Valley regions. The Bay Area is the grocer's prime target market. These additional new stores would be located as far south in the Central Valley as Bakersfield, which is about half-way between Northern and Southern California, with other potential locations in the Central Valley cities of Merced, Turlock, Modesto, Manteca, Stockton and Tracy. Tracy is only about 15 miles from the most far-eastern Bay Area city, Livermore. (By the way, our commercial real estate sources tell us Livermore is on Fresh & Easy's store location radar, as is nearby Pleasanton and Dublin.)

By focusing primarily on the Bay Area, and secondarily on the Central Valley as we describe above, Fresh & Easy would be able to ring the Bay and the Valley with its small-format grocery stores, which average about 13,000 square feet and feature a selection of reasonably-priced basic, everyday grocery items, a large selection of fresh-prepared foods, fresh meats and produce, and specialty, natural and organic packaged goods. The stores are sort of a neighborhood grocery store meets Trader Joe's in terms of design and format.

The confirmation of the 18 Bay Area stores by Tesco's Fresh & Easy Neighborhood Market will further activate the competitive DNA of such local food retailers as Pleasanton, California-based Safeway Stores, Inc. Safeway already plans to open at least five new, small-format stores of its own in the San Jose region. The stores will be about 20,000 square feet. Based on what we know so far, the new mini-Safeway stores will offer basic grocery items like Fresh & Easy, with a major emphasis on Safeway's private label items, which are hugely-popular in its Bay Area supermarkets.

The new, mini-Safeway's (we haven't learned the actual name yet, although some sources have told us it will be Safeway Express) also will feature a strong selection of fresh, prepared foods, in addition to other offerings.

We will be providing further analysis on the Northern California market and Fresh & Easy's potential to succeed in the region in the next few days.

Fresh & Easy Neighborhood Market Northern California Linkage:

Read a number of recent pieces we've written on Tesco's Fresh & Easy Neighborhood Market and Northern California here.

Retail Memo: News & Analysis: Tesco Confirms 19 Fresh & Easy Grocery Markets for the Sacramento Metro and Suburban Region in Northern California

Tesco's Fresh & Easy Neighborhood Market confirmed today it plans to open 19 stores in the Sacramento Metropolitan region of Northern California, as well as in nearby Vacaville and Galt.

Seven of the small-format grocery stores, which average 10,000 square feet -to- 13,000 square feet, will be in the city of Sacramento. Nine of the markets will be in the nearby suburbs. (See the graphic below.) Two of the Fresh & Easy stores will be in Vacaville, which is about 25 minutes from Sacramento, and one store will be in Galt, which is less than 15 miles from Sacramento, and is about midway between the capital city and Stockton, where Tesco plans to locate its Northern/Central California distribution center.

On Monday, January 28 we reported that Tesco had applied for liquor licenses for four Fresh & Easy grocery stores in the city of Sacramento (2 stores) and two stores in the nearby suburb of Folsom. We discovered this fact via liquor license applications, which are public data. As a result, we were one of the first publications to report that Tesco would enter the Sacramento region in Northern California, along with signing leases for 18 stores to date in the nearby San Francisco

Tesco's confirmation of the 19 Sacramento/Vacaville-area grocery markets, along with the confirmation it will begin opening the first of its initial 18 Fresh & Easy stores in the San Francisco Bay Area at the end of this year or in early 2009, brings to a total of 35 the number of Fresh & Easy Neighborhood Market small-format grocery stores the retailer has thus far confirmed for Northern California.

Vacaville is located about 20 miles from Sacramento, off Interstate I-80, which is the primary route from Sacramento to the San Francisco Bay Area. Vacaville is about an hour drive from San Francisco and a little over 30 minutes to the East Bay Area cities of Berkeley and Oakland. Interstate 80 rings the Bay from the Bay Bridge east, out to Fairfield (where Fresh & Easy is locating a store), then on to Vacaville, the University city of Davis, and into Sacramento.

Locating a critical mass of stores in the Sacramento Metropolitan region, then out to Vacaville and Farfield, then into the Bay Area, is the same strategy Tesco is using in Southern California. This "critical mass" strategy emulates retailers like Starbucks and Walgreen's Drugs, small format retailers which locate a critical mass of stores in city's and neighborhoods so as to position their stores as a "neighborhood" retailer.

Additionally, we can report that Tesco is looking for additional new store locations in both the Sacramento and Bay Area regions. In fact, the British grocer already has a number of other location leases locked-up (in addition to those announced) and is in negotiations for more store sites in both the Sacramento and Bay Area regions. We hope to be able to report some of those locations soon here.

As we reported first in December and again in the January 28 piece, Tesco also plans to open a new distribution center in Stockton, California to serve its Bay Area and Sacramento region Fresh & Easy stores. Stockton is located in the Northern San Joaquin Valley, about 30 miles from Sacramento, and about 60 miles from San Francisco. The location is generally no more than one hour's drive-and in many cases less--to all of the 35 confirmed Northern and Central California store locations to date. Tesco's Fresh & Easy Neighborhood Market has not yet confirmed the Stockton distribution center. Additionally, Stockton is about a 15 minute drive from Galt, where one of the 19 Sacramento-area stores will be opened.

Sacramento's Mayor joins F&E CEO Mason for AM presser

Tesco's Fresh & Easy Neighborhood Market CEO Tim Mason made the Sacramento region new store announcement with a splash this morning. He was joined by Sacramento Mayor Heather Fargo and City Councilman Ray Tretheway in front of an empty commercial building located at Northgate Blvd. and San Juan Blvd. in the city of Sacramento. The grocer will remodel the empty building into a Fresh & Easy grocery market.

By having the city's mayor at his side, Mason signaled Fresh & Easy wasn't just another grocery retailer opening a new store in town, but rather is a grocer that's making a major commitment to the city and region by opening an initial 19 stores in the region next year, with more to come.

Having Mason at her side also was good for the Mayor. Sacramento, like all of California is being battered by the sub-prime housing crisis, increasing unemployment and a host of other economic ills. Being able to announce a new business venture like Fresh & Easy moving into her city at this time will score her some major political points with voters.

The retailer also made another smart move by choosing the empty Tower Records building on Watt Avenue in Sacramento as one of its future Fresh & Easy grocery store locations. Tower Records, which later grew into a national chain, which went bankrupted in 2006, was founded in Sacramento in the 1960's--and the Watt Avenue location was its flagship store.

When the Watt Avenue Tower store closed, there literally was a period of mourning in Sacramento for the local independent record store that went on to be a huge mega-chain, then fell on hard times and was shut down.

Tesco's Fresh & Easy should gain considerable goodwill from the community for leasing, remodeling and opening one of its grocery markets in the Tower building, which is what it's called. The building has been empty for over two years.

[Note to Fresh & Easy Management]: It would be wise, and good business, to preserve aspects of the former Tower Records building when you remodel it into a Fresh & Easy market. Perhaps you should call it "Tower Fresh & Easy," or some version of that. Remember, everything is local in America, especially in Sacramento. And, in the case of an iconic building like the Tower Records' site, retaining some aspects of the building's history and culture (a plaque on the front of the new Fresh & Easy store with the history of the building would be a nice touch) will not only go a long way towards creating excellent community relations--but customers as well.]

The timing and style of the announcement was particulary good for Fresh & Easy since analysts like us and others have been writing about how the retailer's current 55 stores in Southern California, Arizona and Nevada are not performing up to expectations. [You can read our most recent analysis on Fresh & Easy store performance in posts made on Tuesday and yesterday on the blog.]

Of course, marketing an PR are only part of being a successful grocer. As we've suggested in our pieces this week, Tesco's Fresh & Easy has major operations challenges to solve and improve in addition to opening dozens of new stores and creating good PR events.

The retailer shouldn't be counted out though. Doing doing so is foolish. Tesco is the world's number three retailer, and it's track record at home in the UK and elsewhere in the world is impressive.

Tesco also has lots of cash. That's helpful to any start up. What we believe Tesco hasn't learned yet though is: it can't do retailing in the U.S. in the same way it does retailing in the UK and Europe.

Fresh & Easy is missing a key American element: localism. This missing element can't be fixed as easily as the operational problems we've pointed out in our analysis. However, its just as important--maybe even more so. And, it's essential.

Competitive environment: Welcome to Sacramento

Nowhere does Tesco need to grasp the importance of tailoring its Fresh & Easy stores better to the local environment and neighborhoods than in Sacramento and its metropolitan and surrounding region.

Sacramento has been one of the fastest-growing cities in California throughout the last decade. The Sacramento Metropolitan region has a population of nearly 2 million people. The city of Sacramento has a current population of about 600,000. In addition to being California's capital city--which means lots of well-educated state government workers--Sacramento has a mixed economy. Agriculture and agribusiness remain huge in the region, as does light manufacturing, warehousing and transportation.

The fastest growing sector in the Sacramento region's economy is in the service sector, both in state government, associated non-profit organizations like law and lobbying firms, and in the private sector. This includes the health professions, law, finance and retail. In the last 15 years the city has been transformed from being a central city in a primarily agricultural region (with the exception of state government), to the urban city center of a booming metropolitan and somewhat cosmopolitan area.

Grocery retailing in Sacramento and the surrounding region has a decidedly local flair. The region's number one (in market share and store count) grocer is Raley's, which is based in the nearby city of West Sacramento. Raley's is a prvately-held, family-owned supermarket chain that's been in business in the Sacramento region for 73 years. The locally headquartered grocery chain has 120 stores and does about $3 billion a year in sales.

The Sacramento-based food retailer operates four store banners: Raley's, Bel-Air Markets, Nob Hill Foods and Food Source. Raley's stores are 55,000 square foot -to- 80,000 square foot superstores. The stores are fairly upscale and offer lots of prepared and other fresh foods, along with tons of grocery products (including lots of organics) and a huge selection of non-foods. Most of the new Raley's banner stores are closer to the 80,000 square foot size. The Raley's banner is the chain's original retail brand.

The Bel-Air banner is an upscale supermarket format. The stores average 40,000 square feet (older stores) -to- 60,000 square feet (newer stores). They're similar to the Raley's stores--lots of upscale fresh foods, but fewer nonfoods do to their size (but still plenty). Bel-Air was an acquisition for Raley's. The Bel-Air chain at one time was Raley's chief competitior in the region. In the 1980's, Raley's acquired the grocery chain from the Wong family, who founded and operated the chain for over 50 years.

Nob Hill Foods also is an acquisition for Raley's. Like Bel-Air, Nob Hill was a long-time family-owned chain. It was based in the South Bay Area city of Gilroy, where two generations of the Bonfonte family operated it for about 60 years. Raley's acquired Nob Hill Foods in the 1990's and consolidated its headquarters in its West Sacramento facility.

Food Source is Raley's discount warehouse-type store format. The grocer created the banner in the 1980's as a way to get into the growing no frills, discount warehouse store category in the region at the time. It's the grocer's smallest banner in terms of the number of stores, but does significant sales volume in its niche.

Citizen Raley's

Raley's also is a leading corporate citizen in the Sacramento region. Sacramento's semi-pro baseball team, the River Cats--which in a big city like Sacramento without a professional baseball team serves as a very popular popular equivalent--plays it games at Raley Field, a state of the art baseball stadium in the city built in large part by the grocer.

The grocer is the number one donor to programs that feed the hungry and homeless in the region. Last year it gave over $15 million dollars to food pantry's and other programs which provide food assistance to families and individuals in need.

In fact, Raley's has its hand in nearly every charitable venture in the region--from Boy Scouts and Girl Scouts, to educational scholarship assistance, environmental causes and literally many dozens more. Additionally, the Raley-Teel family, majority-owners of the Raley's grocery chain, also has its own charitable foundation, which gives additional millions each year to local non-profit groups and supports other charitable causes locally.

The other two major grocers in the Sacramento region--Safeway Stores, Inc. (number two market share) and Save Mart, Inc. (number three market share) are fairly local guys as well. Safeway, which has about 21% of the region's grocery sales market share, has its corporate headquarters in the East Bay Area city of Pleasanton, which is only about 70 miles from Sacramento. Save Mart, which entered the Sacramento region market for the first time last year when it bought Albertsons' Northern California Division from an investment banking firm, is headquartered just 60 miles away in the Central Valley City of Modesto.

Between the three grocery chains--Raley's, Safeway and Save Mart--they control about 85% of the total grocery sales market share in the Sacramento market region. The remaining 15% share is split between Food-4-Less, a multi-store deep-disount warehouse format grocer, numerous independents, Longs Drugs, a couple Trader Joe's stores, and the one Whole Foods Market, Inc. store in the region, which is located in Sacramento. (Note: Whole Foods' is looking to add at least one, and maybe two stores in the region in the next two years.)

Union supermarket chains vs. non-union Fresh & Easy

Raleys, Safeway Stores and Save Mart also are union supermarket chains. On average, the three chains pay their full-time store-level retail clerks about $21.00 hour. Full-time means the clerks' have one full year of full-time hourly experience as a union grocery clerk. Part-timer pay ranges from about $12.00 hour -to- the $21.00 hour amount. The $12.00 hour is an entry-level wage for some positions, and it goes up in increments about every three months per the agreed upon contract between the grocery chains and the union. Nearly all store level workers with six months' to a year's experience make between $15.00 and $21.00 hour.

The union contract also provides store workers with one of the best medical insurance plans in the U.S. It is comprehensive, has lower than average employee contributions, doctors office co-pays and prescription drug out-of-pocket costs for the workers. The plan also offers very affordable dental, vision and mental health plans for reasonable employee contributions.

The union supermarkets also provide a career path for workers who choose to make a career out of the retail grocery industry and work at store-level for 25 -to- 30 years and then retire. The joint employer-union pension plan pays out about $3,500 -to- $4,000 month to union clerks who retire after 25 -to- 30 years in the industry. This is in addition to collecting monthly Social Security pension payments.

Employers make the largest contribution to the worker pension plan. Employees contribute a small percentage out of their paychecks every two weeks as well. Additionally, all three of these union grocery chains--Safeway, Raley's and Save Mart--offer some form of additional retirement plans on their own to workers. Safeway offers a discount stock-purchase plan, while Raley's and Save Mart offer profit-sharing-type programs, since both are privately-held companies. Save Mart has 255 stores throughout Northern and Central Califronia, and annual sales of about $6.5 billion.

Tesco's Fresh & Easy Neighborhood Market currently pays store-level workers $10.00 hour. There currently is no established higher hourly wage for current workers when they achieve one year's experience like at the union supermarket chains.

The 10,000 square foot -to- 13,000 square foot grocery stores employee about 20 workers per-store, according to the company. All of the store employees, with the exception of a couple managers, work part time. Those part-timers who want to can work up to 20 hours a week, which qualifies them for a health insurance plan.

However, we've compared a Fresh & Easy store employee's health plan to the union food retail chains' plan, and the union plan wins across the board: it's more comprehensive, has less of an employee contribution, provides for lower employee co-payments, and offers a number of other benefits.

According to a Tesco Fresh & Easy spokesman, the retailer also offers bonuses of up to 10% to store-level workers if they meet certain performance criteria. The bonus is once a year. Fresh & Easy doesn't currently offer store-level employees a retirement plan. They also don't get discounts at present on Tesco plc. stock, like Safeway employees do with Safeway stock.

Trader Joe's, which has only a couple stores in the region, Whole Foods (it has one store), and Wal-Mart, which only has a handful of Supercenters in the Sacramento area, also are non-union shops like Tesco's Fresh & Easy Neighborhood Market.

Sacramento shoppers are historically 'local-loyal'

Sacramento region shoppers have long been super-loyal to Raley's. Just ask Safeway Stores, Inc. Despite the fact that its a chain based nearby, has more than 10 times the number of stores and does at least $40 billion more in annual sales than Raley's, its never been able to overtake the local grocer in market share in the region, despite trying hard to do so for at least four decades.

Tesco's Fresh & Easy Neighborhood Market would be wise to learn as much as it can about the "local nature" of grocery retailing in the Sacramento region. Over the last 40 years, Safeway left the market twice, under two different ownership structures, because of Raley's domination. It was only again in the 1980's--and particularly in the 1990's with its Lifestyle format stores--that Safeway began to make some inroads in the market.

Fresh & Easy senior management can expect a strong response by Raley's, Safeway and Save Mart when it enters the Sacramento market next year. For example, in terms of retail pricing, all three--but especially Raley's and Save Mart--won't hesitate to lower prices if Fresh & Easy comes in with its discount pricing structure on basic grocery items like it has in Southern California, Arizona and Nevada, which it will do in Sacramento because doing so is key to its format and positioning. As the ancient Chinese saying states: 'May you live in interesting times

Related Stories From Our Archives:

>Retail Memo: "Tesco's Fresh & Easy Neighborhood Market @ 50 (Stores): Analysis, Observation and A Few Suggestions for Some Ways Forward. >Retail Memo: "New Details and Analysis About Safeway's Small Format Summer Bay Area Surprise for Tesco's Fresh & Easy Neighborhood Market." >Retail Memo: "Wal-Mart Heating-Up the Competition Against Tesco in the UK (As Well as At Home in the USA).

>Retail Memo: "Wal-Mart's New Small-Format 'Marketside' Grocery Store Logo Unveiled." >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 Hiched." >Retail Memo: "Raley's Attempts to Come Full-Circle With New Private-Label Natural and Organics Products' Brand." >Tesco Fresh & Easy Neighborhood Market Update: "New Nielson Study Analyzes the Chain's Affect on Competitors."

>Breaking News: "Tesco's Fresh & Easy Confirms it Will Open 18 Stores in San Francisco Bay Area." >Retail Memo: "Designing the 'Perfect' Small-Format Grocery Store in A 'Near-Perfect' Place." >Retail Memo: "Wal-Mart and Safeway Stores Could 'Box' Tesco in With New Small-Format Stores." >Tesco Fresh & Easy Neighborhood Market Update: "Fresh & Easy and the UFCW Union." >Retail Memo: "The Small-Format Revolution Continues to Heat Up."

>Mid-Week Marketing Memo: "Three Reasons Why Tesco's Fresh & Easy Neighborhood Market's Venture Could be a Huge Success--and Three Reasons it Could be A Historic Food Retailing Failure." >Monday Morning Java: "Safeway Small-Format Stores on the Way." >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."

>Tuesday Talking Points Memo: "Eastward Bound for Fresh & Easy." >Tesco Fresh & Easy Update: Oakland: "Oakland May be the Central Front in Tesco's Fresh & Easy Neighborhood Market's Northern California Invasion in 2008." >Breaking News: "First Fresh & Easy Market Opens A Week Early." [Click here to read one or more of these pieces from our archives.]

Breaking News: First Fresh & Easy Market Opens A Week Early

The Fresh & Easy Neighborhood Market in Hemet, California is open for business a week before it's official grand opening date of November 8.

The sign at the Fresh & Easy in Hemet, California says "We're Open." The store is open a week before it's official grand opening date. (Photo by RL for Curbed LA blog.)

The first Fresh & Easy Neighborhood Market is open in Hemet, California, a week before the first six stores in Southern California are scheduled to open next Thursday on November, 8. Hemet is located in Southern California's desert region. (View location map here.)

Yesterday we reported here the Curbed LA blog wrote that a reader and worker at Tesco's Southern California operations told the publication the Hemet store was open and conducting a "soft opening" prior to the official grand opening on November 8.

We obtained the phone number to the Hemet store and, after calling late yesterday afternoon and in the evening and not getting an answer, called this morning and were greeted by a human voice on the other end of the line. That voice belonged to an employee of the Hemet Fresh & Easy grocery market, who confirmed for us that it indeed is open.

The store employee wouldn't tell us much more however, as he said--and we understood--he wasn't supposed to talk too much about the fact the store was open a week before it's supposed to be. The store associate did tell us the market was pretty busy despite the fact it isn't supposed to be open. The worker also said it was a good idea to open "early" so store staff could get the "kinks out" and be ready for the grand opening on November 8.

A sneak peek picture of Fresh & Easy's advertising circular. The picture was taken by LR (using a camera phone) and first published in today's edition of the Curbed LA blog.

Meanwhile, in today's Curbed LA blog, writer J. Williams has a report from a reader, RL, who visited the Hemet Fresh & Easy store today, and took the three pictures published above adn below.

RL, wasn't all that impressed with the Fresh & Easy format or the Hemet store though. He told J. Williams of Curbed LA "the best way I can think to describe the store is that it is a cross between a Trader Joe's and an old school supermarket of the 50's and 60's based on its size. Honestly, I was not that impressed, RL told J. Williams. "I don't think they really have much over TJ's, but it is great they are entering markets TJ's has thus far ignored." Trader Joe's doesn't have a store in Hemet--yet.

RL also said there were numerous employees in the Hemet Fresh & Easy, "which I assume is because they are expecting lots of curious customers" at the "soft opening," he told Curbed LA.

Curbed LA's J Williams conducted a Q&A with reader and new Fresh & Easy shopper RL, which you can read here. Among other things, RL said the produce selection wasn't extensive. It's similar to Trader Joe's in that the fruits and vegetables are a mix of bulk produce, with others sealed in bags and some in small containers, he said. RL says all of the Hemet store's checkout lines have the option of being self-serve, featuring scanners shoppers can use themselves. "But check this out," a pleased RL tells J. Williams: "They (store clerks) still bagged the items for me as I was registering them with the (self-service) scanner."

Fresh & Easy brand prepared Chicken Salad and the retailer's reusable shopping tote bag from the Hemet store. (Photo by RL, first published in today's Curbed LA blog.)

RL said he generally liked the prepared foods offerings but added what he saw in the Hemet store was fairly basic "American" fair rather than anything upscale or authentically ethnic. Of course, this is one store, and a "soft opening," and we expect Fresh & Easy will offer additional, more upscale and ethnic prepared foods along with these more basic items as more stores open and time goes on.

According to RL, the store's overall prices were reasonable, and he especially liked the 99 cent chocolate milk he purchased to have with his lunch of chicken salad and tortilla chips.

We're headed to Southern California next week to check out some or all of the six Fresh & Easy stores scheduled to open on November 8. We plan on dropping into the Hemet store a day or two prior to the 8th to check it out for ourselves. The store employee we talked to on the phone today told us they are planning some pre-grand opening events as well as the official events and promotions scheduled for November 8. We will report what we find and observe here. We're also hearing rumbles from our sources that a couple other Southern California Fresh & Easy stores may already be open, and will report on this as we obtain further information.

Tesco Offers Pre-Grand Opening Fresh & Easy Tease

Tesco officially opens its first six Fresh & Easy Neighborhood Markets in the U.S., in Southern California, next Thursday, November 8. Of course, as you know from reading the piece above, the Hemet, California store is open ("soft opening) and operating ahead of schedule.

However,with less than a week to go before the official grand opening of its first six stores in Los Angeles, Anaheim, West Covina, Upland, Arcadia and Hemet, the retailer is giving potential customers (and the media ) who can't drop into the Hemet store, a preview of its Fresh & Easy store operations, including some retail prices for selected prepared foods and grocery items.

Tesco says it will offer competitive, everyday low prices in its Fresh & Easy Markets by keeping things simple and cost-effective, despite the store's offerings of upscale, prepared foods and specialty and natural groceries, fresh produce, meats and basic groceries.

Additionally, as you can see from the items in its advertising circular from the story above, the retailer is appealing to everyday shoppers by featuring staple grocery items like Tide laundry detergent, Bounty paper towels, Colgate toothpaste, Gatorade and other basic items in its promotional circular. There's also a nod to Southern California's Hispanic shoppers, with a 99 cent feature price for Tapatio Hot Sauce, which is a staple for many Latino consumers. (At 99 cents it's a good price as well.)

To keep prices low, the grocer says it's taking an operational approach which includes labor-saving processes like using display-ready packaging for stocking its shelves, eliminating the need (and labor intensiveness) of putting products on the shelves one item at a time. All the grocery products delivered to its stores from the retailer's Riverside, California distribution Center will be in these "case-ready" ready-to-stock cartons. Tesco says all of these cartons will either be recycled or reused.

Further, all Fresh & Easy grocery markets will receive deliveries of fresh meats, produce, prepared meals and other perishables daily. Fresh products will be delivered to the stores in reusable containers. The retailer says these daily deliveries will allow for cost-cutting because there will be little or no product spoilage at store level, and inventory will be kept to "just in time" standards.

Another significant cost-cutting measure, which will allow for competitive, every day low prices, according to Tesco, is that all of the Fresh & Easy stores are being built in a way that should allow for about a 30% reduction in energy use compared to a typical-sized grocery store in the U.S.

To demonstrate what it says are its competitive, everyday low prices, Tesco released some everyday retails for a selected number of products today. Below are a few examples:

Fresh, Prepared Foods:

~Fresh & Easy brand heat & serve Mac & Cheese entree. 17oz. $2.99

~Fresh & Easy Mashed Potatoes with Cheddar Cheese and Bacon,17oz, $2.99

~Fresh & Easy Cooked, Sliced Breast of Chicken, 16oz, $4.99

~Fresh & Easy Chicken Teriyaki Bowl, 10oz, $1.99

~Fresh & Easy Field Greens Salad with Balsamic Dressing, 9oz, $1.99

Basic and Organic Grocery and Perishable Items

~Fresh & Easy Milk, gallon, $1.98

~Fresh & Easy Cage-Free Brown Eggs, 1 dozen, $1.98

~Fresh & Easy Organic Breakfast Blend Coffee, 12oz, $4.99

~Fresh & Easy Diced Tomatoes, 14.5oz can, 61 cents

As you can see, Tesco is putting a major focus on its private label Fresh & Easy brand, which is a variation on their long-time Tesco private label brands in the UK and throughout the world. Fresh & Easy stores also will carry a selection of national brand groceries, specialty, natural and organic groceries and perishables. The retailer says all of its Fresh & Easy brand food products are free of trans-fats, artificial colors and flavors, and only use preservatives "when absolutely necessary."

In addition to the six Fresh & Easy Neighborhood Markets opening in Southern California on November 8, five stores will open in the Las Vegas, Nevada metropolitan region on November 14. On November 28 a third store is set to open in Southern California's Orange County, in the city of Laguna Hills. Fresh & Easy stores will open in Arizona--as well as more in Southern California, including in San Diego, and in Nevada--before the end of the year.

We've also reported here that Tesco has secured its first location for a Fresh & Easy store in Northern California in San Jose. The retailer also is looking throughout Northern and Central California for store locations, including Bakersfield in the Central Valley, where it has a specific location picked out.

Tesco plans to have at least 100 Fresh & Easy Neighborhood Markets operating in California, Arizona and Nevada by the end of 2008.

Tesco Fresh & Easy Roundup: What Others Are Saying

Tesco's Fresh & Easy Neighborhood Markets' format and impending store openings are garnering lots of media attention. Below we bring you a few stories we found informative and interesting on the eve of the Fresh & Easy store launch:

A Second American Revolution? Maybe:

In a piece titled, Big-Headed Tesco May Start A Retail Revolution, Sarah Mahony of Marketing Daily interviews retail consultant Herb Sorenson, global scientific director of shopper insights for the firm TNS North America, about Tesco's coming to America, its Fresh & Easy format, and what impact it and the retailer may have in the U.S. Read the article here.

Tesco Raises $2 billion for U.S. Fresh & Easy Markets:

Tesco has raised $2 billion in a bond issue in the United States just a week before it launches its first U.S. retail venture--the Fresh & Easy Neighborhood Markets convenience-oriented food retailing chain. Tesco said it raised the large sum as a way to broaden its investor base in the U.S., according the the London Times.

The bond issue is Tesco's first ever in dollars rather than the British Pound. The retailer told the Times it would use the $2 billion for general purposes, including it's aggressive store building program for the Fresh & Easy chain in the U.S. Tesco has thus far said it will spend $250 million per year to develop the Fresh & Easy chain. The company has said it wants to build a $6 billion dollar-plus franchise in the U.S. with Fresh & Easy. Read more here.

(Note: As we reported here billionaire Warren Buffet is one American investor who is bullish on Tesco and Fresh & Easy. Over the last two years Buffet has been buying Tesco stock, and currently holds shares worth about $1 billion.)

Corporate Giving: Tesco Donates to Charities For Each Store Opened:

Today's Whittier News reports that Tesco will donate $1,000 to a charity chosen by store employees each time a new Fresh & Easy Neighborhood Market is opened. The first charity selected to receive a $1,000 donation is Foothill Unity Center in Arcadia, California. The Arcadia store is one of the first six set to open on November 8. Read more about the donation and the program here.

Southern California Grocers Not Standing Still For Fresh & Easy Stores

Tesco may be opening as many as 75-80 Fresh & Easy grocery markets throughout Southern California over the next two years, but that's not stopping food retailers in this highly competitive, multi-format market from going forward with building new stores and wringing every last merchandising effort out of their existing units.

Today's Los Angeles Times has a feature article that describes how food retailers like Whole Foods, Safeway (its Vons and Pavilions banner stores), Ralph's Supermarkets and Sprouts, a natural foods retailer, are building new, big upscale stores featuring lots of natural, organic, specialty and gourmet foods, in Southern California.

Chief among these grocers is Whole Foods, which will open it's largest store (at almost 80,000 square-feet) in the Western U.S. next week in Pasadena. The huge, two story store is packed with natural and organic groceries and non-foods, has three restaurants in-store, and more special lifestyle features than nearly any other store Whole Foods has built to date.

Phoenix, Arizona based Sprouts, which currently has only two stores in Southern California, plans on opening a number of new stores in the region in the next two years, in addition to its new store, which will open soon in the Orange County city of Irvine.

Grocery industry giants Safeway Stores and Ralph's (owned by Kroger Co.) have their own upscale format stores that feature fresh prepared foods, natural, organic and specialty foods, expanded perishables departments, and features like in-store cafes, upscale bakeries, wine departments and other amenities. Safeway's upscale banner is called Pavilions and Ralph's version is named Fresh Fare. You can read more here.

Fresh & Easy Central California Update:

On Saturday, October 27, we reported here that Tesco was in negotiations with a shopping center owner in Bakersfield, California to locate a Fresh & Easy Neighborhood Market in his center in this Central Valley city. Bakersfield would be the first city in California's agricultural-rich Central Valley to get a Fresh & Easy grocery market.

As we reported, the only hitch was that the shopping center wasn't zoned for retail food stores for some reason. That's changed as of yesterday, however, reports today's Bakersfield Californian newspaper. The city's Planning Commission has approved a petition from the shopping center's owner to change the center's zoning to allow retail food stores, paving the way for Tesco to locate a Fresh & Easy store there. Read more here. The Bakersfield City Council has to give final approval on the zoning change but they generally go with the Planning Commission's vote.

Bakersfield is far from an upscale city. It's a working class urban region, surrounded by rural communities. It's economy is primarily based on agriculture and services. If Tesco locates one or more Fresh & Easy markets there, it will further demonstrate the grocer's stated plans to build and operate stores in what it has called "food deserts," regions where other upscale-type grocers won't locate stores.

Retail Memo: Wal-Mart and Safeway Stores Could 'Box' Tesco in With New Small Format Stores

Analysis & Opinion: The small format food retailing revolution has just gotten even hotter in the Western U.S, with Wal-Mart Inc.'s plans to open its new MarketSide stores in Arizona. And in California, Safeway Stores continues with its plans to open new, small format stores in the San Francisco Bay Area. Meanwhile, Tesco is being pretty quiet about the new developments, but continues to open a Fresh & Easy Neighborhood Market store nearly every other week.

The news that mega-retailer Wal-Mart will build four (to start) 20,000 square foot grocery markets named "MarketSide" in the Phoenix, Arizona metropolitan region adds new, additional competitive pressures to Tesco's Fresh & Easy Neighborhood Market small format stores.

These Wal-Mart "Small Marts," which at 20,000 square feet are about 5,000 to 7,000 square feet bigger than Fresh & Easy stores but half the size of the retailer's Wal_Mart Neighborhood Market format, are likely to be similar in format to British grocer Tesco's small format grocery markets.

Based on what we currently know--from published reports and additional information from our sources--the small format stores will offer a mix of basic groceries, prepared foods, and specialty items. This mix is similar to Fresh & Easy's. At this point, we aren't sure what else the "MarketSide" stores will merchandise, but are rather sure they will feature some version of this basic grocery, fresh foods mix, along with whatever else the stores will sell.

As out readers know, we reported recently that Pleasanton, California-based Safeway Stores, Inc. has secured leases in the San Francisco Bay Area region of San Jose for five new, small format stores the retailer plans to open later this year. While we don't yet know the name of these Safeway small format stores, we have fairly good information they too will offer a mix of basic groceries and prepared foods.

Neither of these developments are good news for Tesco's Fresh & Easy. Just two months ago, Fresh & Easy stood as basically the lone food chain pioneer in this hybrid small format, basic grocery/fresh foods merchandising arena. Had this remained the case, Fresh & Easy would have had plenty of time to rollout its numerous planned stores in California, Arizona and Nevada, perfected its format, and not had to share the media limelight with two powerhouse, US-based retailers--Wal-Mart and Safeway--as they are having to do now.

This won't be the case however. Wal-Mart's initial opening later this year of four stores in Arizona, all four in areas where there are Fresh & Easy stores, and Safeway's opening later this year of five stores in the San Jose region in Northern California, will put a competitive check on Tesco. (Tesco plans to start opening Fresh & Easy stores in Northern California later this year. The grocer also will build a distribution center in Stockton, in Northern California, to serve up to 50 stores in the region it wants to build in the next two years.

Both Wal-Mart and Safeway are major retail brand names. Safeway, which is based in Northern California, will have a major marketing advantage with its small format stores against Fresh & Easy. Safeway also already has all the supply-chain and marketing infrastructure in place to serve these new, small format stores. The grocer operates about 300 supermarkets in Northern California, including numerous stores in and around San Jose. It's corporate headquarters is about 30 miles from the San Jose region. It also has a distribution facility nearby.

Wal-Mart already has a number of Supercenters in Arizona, including in the Phoenix region where it will open the small format "MarketSide" stores. The chain, like Safeway has all of it's logistics in place, to say the least. As the world's largest company and retailer, Wal-Mart will have no problem matching Tesco on selection, price and marketing muscle. Arizona also is one of the best food markets for Wal-Mart. Opening it's first small format stores there is, in addition to going head-to-head against Fresh & Easy, a smart move in general for the retailer.

Like a game of chess on a chessboard, Wal-Mart and Safeway have the ability to box Fresh & Easy in: Wal-Mart in Arizona (to start) and Safeway in Northern California (to start). Safeway also has numerous supermarkets (over 400) in Southern California, where its Vons' stores are the number two food dollar market share leader, just behind Kroger Co.'s Ralph's. Further, the grocery chain also has a retail presence in Nevada.

Safeway already is looking to Southern California to possibly locate some of the new, small format stores, and can do so easily as it has the same fully-developed infrastructure it has in Northern California. (Safeway has this fully-developed supply-chain ability for the entire Western USA. For that matter, for the entire USA.)

Wal-Mart can go anywhere. The mega-retailer actually developed the "MarketSide" stores in the San Francisco Bay Area, where a team of executives spent months developing the format. Expect stores in Northern California (urban and suburban stores), Southern California and elsewhere. The global giant knows no geographical--or supply chain--limitations.

So, just a couple months ago, the United Kingdom's biggest grocer was sitting alone on top of the small format, hybrid grocery/prepared foods format in the U.S. Today, just a blink of the eye later, there are two major competitors--the world's biggest retailer, Wal-Mart, and the number one food retailer in the Western USA, Safeway.

The result of these two retail players getting into the game in the Western U.S. means Tesco's mission has just become even harder than it already was. Creating a completely new enterprise--Fresh & Easy, a new format, supply chain and all else, is hard enough in and of itself. For Tesco to now operate and grow the venture with Wal-Mart and Safeway on its heels will be in many ways an even bigger challenge that those original red-coated British invaders faced when they tried to rest the former colony away from a bunch of upstart Americans who wanted their own, sovereign country.

Tesco is good though, and they shouldn't be discounted. They've built their Tesco Express small format chain into the best in Europe. But Wal-Mart and Safeway are equally good, especially in their food retailing homeland. Of course, Wal-Mart isn't the most nimble of food retailers. It will be interesting to see if the mega-retailer can make the transition from big box, mass food retailing to small format, niche retailing. They've done so to a certain degree with their 45,000 square foot Neighborhood Market format. However, at best they have thus far earned a B- with that format.

Wal-Mart has just hired a veteran of UK food retailing, Jack Sinclair, to run its U.S. grocery operations. Sinclair isn't just any veteran of UK food retailing. He spent many years with Tesco, and knows the British retailer's operations (including small format) well. For those who think Wal-Mart is merely dabbling with the "MarketSide" format and stores, the hiring of Sinclair should lay those thoughts to rest.

Safeway has become as nimble a retailer that exists in the U.S. (and internationally for that matter) these days. The grocer has turned its retail business around with its upscale Lifestyle format. It continues to innovate with the format with its new stores, adding new departments and in-store features.

Safeway also has what is perhaps the most successful premium and organic store brand in the business today, with its O' Organics grocery and fresh foods brand. Think we might see some O' Organics brand products in the new, small format Safeway stores?

Safeway also owns an upscale restaurant in the San Jose area, and has been using it to develop innovative, fresh prepared foods items which we believe will find their way into these new, small format markets. The small format store business isn't something Safeway just thought of. The grocer started a research project targeting Tesco's Fresh & Easy venture at least two years ago, and has been working on its small format development program for at least that long.

As we've been writing about here for nearly six months, there is a small format food store revolution happening in the U.S.--and in Europe and Canada. Doing battle are not only Tesco, and now Wal-Mart and Safeway Stores, but a host of others. German grocer Aldi plans on building as many as 100 of its no frills, price-impact, small format grocery stores a year in the U.S. for the next few years. The retailer already has nearly 900 of the little, no frills discount grocery stores in the country. Aldi also owns California-based small format specialty grocer Trader Joe's, which is another major competitor for Fresh & Easy.

Giant Eagle supermarkets also is building more of its Giant Eagle Express small format stores, which are similar to a Fresh & Easy Neighborhood Market store.

Whole Foods Market, Inc. will open its prototype Whole Foods Express later this year in a former Wild Oats store in Boulder, Colorado. Look for these Express stores from Whole Foods to have lots of fresh, prepared foods items, especially grab-and-go, high-quality but convenient offerings. Also, don't be surprised if some of these Whole Foods' Express stores pop-up in California, one of the supernatural grocers best markets--and one of its top target regions for store development and growth over the next five years.

There's much more going on in this small format revolution. [You can read many of the pieces we've done by typing-in the key words: small format, small format revolution, small format retail food stores, small format grocers, Small Marts, Fresh & Easy and similar phrases in the search box at the top of the blog. Type just one phrase at a time in though. Also use the tags at the end of this piece as search words.]

Meanwhile, the small format revolution's battlefield is becoming a bit more complex--and more intense--for Tesco's Fresh & Easy.

Wal-Mart and Safeway, independently, are flanking the British grocer from two sides--Wal-Mart in Arizona, Safeway in California. We will see one or both of these retailers converge on the middle--Nevada--soon as well. Of course, the big battle, and the big market, is California, south and north. It's a state of nearly 40 million people, which is bigger than most European countries. We suggest you'll see Tesco, Wal-Mart and Safeway battling it out with small format stores in California beginning later this or in early 2009.

The revolution has just started though. Don't rule Tesco's Fresh & Easy out. But don't underestimate Wal-Mart and Safeway either, especially when it comes to not wanting to loose food dollar market share in their home country--and in Safeway's case, on it's home turf.

This revolution won't likely be televised. But we will continue to report on it and write about and analyze it here for our readers. Stay tuned.