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.

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.

Retail Whispers: Retail News You Aren't likely to Read Elsewhere

By: The Insider

Cost-Plus World Market Looking for Growth in the Southern USA

Oakland, California-based Cost-Plus World Market, operator of 300 U.S. stores which sell imported and domestic specialty and natural foods, beverages, wines, craft beers, premium coffee and confections; along with furniture, housewares, gifts and related general merchandise items, is expanding.

The consumables-durables format retailer with an international flair, which operates stores of about 18,000 -to- 30,000 square feet, is looking for locations primarily in power retail shopping centers in the Southern U.S. states of Florida, Georgia, Louisiana, South Carolina and Tennessee, according to Boca Raton-based retail real estate firm Katz & Associates, which is working with Cost-Plus in locating store sites in these Southern USA states.

Cost-Plus World Market likes to locate its stores in power centers with tenants like upscale home stores and similar formats sharing the shopping center.

Key demographics for the specialty food, beverage and home-oriented products retailer include having a population of about 300,000 people within a 10-miles of it's stores, along with average minimum incomes in the $60,000 a year range.

Specialty foods/beverages, wines and related consumables are the largest sales category for Cost-Plus World Market stores. The retailer is currently expanding its World Market store brand line of specialty and natural foods products throughout all categories.

Current categories under the World Market brand include, but aren't limited to: confections, beverages, snacks, preserves, salad dressings and condiments, oils and vinegars, prepared foods, rice and pasta and numerous other categories. Many of the World Market brand items are produced overseas, keeping with the retailer's international theme.

Cost-Plus also is a pioneer in specialty wine and craft beers merchandising, offering a wide variety of both at discount prices in its stores, as it is in the premium coffee and confections category. The retailer's first store, opened in the 1960's at Fisherman's Wharf in San Francisco, was one of the first retail stores of any kind in the U.S. to not only sell premium whole bean coffee, but to roast it in-store as well.

Cost-Plus stores sell about an even mix of branded specialty foods and beverages produced in the USA and internationally. However, with the aggressive expansion of the retailer's store brand program, it's beginning to eliminate some of the branded domestic and imported specialty foods brands and items it sells due to space limitations. Imported specialty foods--especially unique items in popular categories--is a major merchandising focus for Cost-Plus.

Publicly-traded Cost-Plus World Market is currently losing money due to a combination of factors; primarily the economic recession or downturn in the U.S., which has dramatically slowed sales of furniture, housewares, gift items and related hard goods in the stores.

To combat this poor performance of late, Cost-Plus World Market is getting more aggressive in its consumables categories, including expanding its higher margin World Market private label line, demanding more stronger promotions from vendors, and featuring far more specialty food and beverage items in its weekly advertising circulars at discount prices than it has in the recent past.

Cost-Plus World market is looking to lock up locations in various cities in these five Southern U.S. states over the next 16 months.

Sacramento, CA-based Raley's in Growth Mode

Sacramento, California-based Raley's, a multi-banner and multi-format operator of 129 supermarkets and warehouse stores in Northern California and Nevada, is currently looking to expand its store count in both regions, Retail Whispers has learned.

Commercial retail real estate sources in Northern California first tipped Retail Whispers off that Raley's was looking for locations for new stores in the regions.

Kent Haggarty, who is heading up the search for West Sacramento-based Raley's, confirmed the grocery chain is looking for locations in Northern California and Northern Nevada, but says he isn't at liberty to say exactly where and how many.

Raleys operates four retail banners. It's number one banner is Raley's, which are 55,000 -to- 75,000 square foot combination food and non-foods superstores, featuring large natural foods departments, a wide-variety of in-store, fresh prepared foods, and extensive selections of specialty, gourmet and ethnic food and grocery products, along with basic groceries and lots of non-foods and general merchandise items.

The stores also have large in-store bakeries and pharmacy's. Most of the Raley's banner superstores also have in-store eating venues and cafes.

Newer Raley's banner stores also have gasoline fueling stations next to the stores.

The format is upscale but value-based in that the Raley's banner isn't a specialty supermarket but rather a combined basic supermarket and upscale specialty store. Raley's banner stores are located all over Northern California and Nevada.

The Sacramento-based supermarket chain, which is the leader in market share in the Sacramento Metropolitan region, also operates the Bel-Air Markets banner. Bel-Air stores are upscale supermarkets which average from about 30,000 -to- 50,000 square feet.

The stores carry a complete selection of food, grocery and non-foods items, lots of specialty and natural foods products, and in-store fresh, prepared foods. They have in-store bakeries, eat-in venues and cafes, all in an upscale but complete supermarket format.

Raley's acquired Bel-Air, which was the grocer's leading competitor in the Sacramento area, in the late 1980's from the Wong family. Most of the stores are located in Sacramento and surrounding areas.

The third supermarket banner Raleys operates is Nob Hill Foods. Raleys acquired then Gilroy, California-based Nob Hill in the 1990's from the Bonfante family, which operated the family-owned chain for about 65 years.

The Nob Hill banner is an upscale supermarket format similar to Bel-Air. The stores are about the same size on average (newer stores are in the larger range for both the Nob Hill and Bel-Air banners) and merchandised in a similar manner.

The Nob Hill banner supermarkets are located in the San Francisco Bay Area and central coast region, along with a couple in the Central Valley in Northern California. This is due primarily to the fact these were the chain's historical market regions when owned by the Bonfante family before the Raley's acquisition.

Lastly, Raleys operates about a dozen warehouse format discount stores under the Food Source banner. These stores are essentially basic warehouse format stores--cement floors, warehouse shelving--with a slightly upscale twist compared to a Food-4-Less or similar warehouse stores, for example. The focus of the Food Source stores is price and value.

Raleys, with about 129 stores currently in the four formats, does nearly $4 billion in annual sales. Our sources tell us the Raleys banner will be the one the grocery chain expands primarily in Northern California and Northern Nevada.

The new generation Raley's banner stores are big: about 65,000 -to- 80,000 square feet, and as mentioned include fueling stations as part of the format.

Raley's recently opened two new Raley's banner stores in the Northern San Joaquin Valley in Northern California. These stores include a new service the food retailer is trying out, which is a drive-up quick customer pick-up service for grocery orders. Customers can place their grocery orders online and then pick them up curbside at a special location outside the store. A clerk wheels the grocery order out and puts it in the customer's car. The customer pays for the order as part of the online ordering process.

Tesco's Fresh & Easy and Trader Joe's: Side-by-Side

The next new Fresh & Easy Neighborhood Market small-format grocery store Tesco is set to open will be in a shopping center in Manhattan Beach in Southern California. That Fresh & Easy--which when it opens on July 2 will be the first store Tesco has opened since its Fresh & Easy Neighborhood Market USA took a three month new store opening pause which began in April and ends with the store's opening on July 2--will not only be located very close to an existing Trader Joe's grocery market in the shopping center, but the two small-format grocery retailers will even share the same parking lot. The Fresh & Easy is at 1700 Rosecrans and the Trader Joe's is at 1800 Rosecrans in the shopping center.

Since the two formats--Trader Joe's and Fresh & Easy--are so similar in look and merchandising, this should be an interesting upcoming head-to-head food retailing battle. Tesco's stated positioning for its 10,000 -to- 13,000 square foot (same size as Trader Joe's) grocery stores is as everyday neighborhood grocery stores for all consumers, while TJ's positioning is more specialty and natural foods-oriented.

Despite this key difference in format positioning, the two store formats look very similar inside and out: both have cements floors, fairly no frills design elements, use warehouse style shelves, and focus on store brands primarily.

Both retailers' store formats also carry fresh, specialty, natural and organic foods and groceries, as well as specialty wines and craft beers. Tesco's Fresh & Easy though, unlike Trader's Joe's, sells an assortment of basic everyday grocery products. Read more about the Fresh & Easy Manhattan Beach, California location close to the Trader Joe's, as well as view photographs of the two stores in the shopping center here.

Having the Fresh & Easy grocery market within easy walking distance from the existing Trader Joe's might be a good test to see if consumers "get in" in terms of Tesco's positioning of Fresh & Easy as a mini supermarket for everyday shopping (primary) rather than being a clone of Trader Joe's.

Starbucks Opening First 'General Merchandise' Outlet in SoCal Mall

Starbucks CEO Howard Schultz said he was going to innovate when he took back the CEO title and position in addition to retaining his Chairman's title earlier this year.

First, Schultz closed every Starbucks cafe in the United States for three hours in February for combination training sessions/motivational sessions for store associates as a way to make a statement that he was back, and bringing with him the old Starbuck's culture he created as the coffee retailing chain's founder and long time leader.

Schultz also jumped-started the introduction of Starbucks new line of branded gourmet chocalate items, which are being sold at upscale supermarkets and specialty stores throughout the U.S. and introduced internationally. The line had been in development for sometime but its introduction stalled under the company's former CEO and senior management team.

Now it appears Schultz and company are introducing a brand new Starbucks retail format; a Starbucks merchandise outlet store.

The first of these stores--they aren't Starbucks cafe's that sell Starbucks branded merchandise as a sideline but rather stores dedicated to the proposition--is set to open today at the Ontario Mills Mall in Ontario, just outside of Los Angeles.

Ontario Mills is a premium lifestyle shopping mall operated by the Simon Company. The mall has numerous upscale outlet stores in it, including many operated by some of the world's most upscale specialty retailers.

Below is the sign Retail Whispers' intrepid Southern California correspondent IFN spotted on the window of the Starbucks general merchandise outlet yesterday:

COMING SOON!

STARBUCKS MERCHANDISE OUTLET OPENING JUNE 11TH!@ THE ONTARIO MILLS MALL LOCATED IN NEIGHBORHOOD 8
EVER WISH YOU HAD A WHOLE SET OF THAT CERTAIN STARBUCKS MUG OR TUMBLER?

NOW YOU CAN?

FIND MACHINES, MUGS, TUMBLERS AND MUCH MORE AT DISCOUNTED PRICES!

The Starbucks general merchandise outlet is located in Neighborhood or Section 8 of the mall, close to "Off-Saks Fifth," the outlet store for the upscale department store chain Saks Fifth Avenue. [View the mall floor plan here for the location.]

The Starbucks general merchandise outlet, the first of its kind anywhere we are able to find, will sell everything Starbucks: from coffee mugs, coffee makers and apparel (probably that new Starbucks gourmet candy as well), to whatever else Schultz and company can dream up.

There's a Starbucks cafe located in the Ontario Mills Mall not far from the new Starbucks general merchandise outlet. Can we smell some synergies brewing? Or is that just a Dark Italian Roast blend?

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.]

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: Former Raley's CEO Michael Teel and Partner Developing New Prepared Foods, Natural-Specialty Foods Chain in Sacramento, California

A Sacramento, California USA business group called M2 Venture Partners, which is headed by Michael Teel, the former CEO of the Sacramento-based supermarket chain Raley's, has leased and is currently remodeling a former restaurant site (formerly called Adiamo restaurant) in East Sacramento, which it plans to turn into its first small-format prepared foods bistro and natural-organic-specialty foods market of a chain of such stores, called "Goods Eats Grocer." The first "Good Eats Grocer" market is set to open by the end of this year.

That first "Good Eats Grocer" store--which will have a full kitchen and seating inside, as well as offering in-house fresh, prepared foods for takeout, along with selling natural, organic and specialty foods and groceries--will be located at 32nd Street and Folsom Boulevard in East Sacramento.

According to Mr. Teel, the East Sacramento "Good Eats Grocer" market will be just the first store in what will be a chain of such combination prepared foods bistros and natural-organic and specialty foods stores the enterprise plans on opening in the Sacramento area.

Here is how Michael Teel describes the Good Eats Grocer format: " Good Eats Grocer is a natural-organic crossover market that sources the finest quality foods at incredible prices. We have designed our stores to be smaller, and more intimate with an overriding emphasis on the customers’ convenience and ease of access. We offer a great selection of natural and specialty foods from around the world and a huge variety of take-home meals and dinner solutions for the family.

Teel's partner in M2 Venture Partners (the second Michael in M2) is well-connected Sacramento-based technology company entrepreneur, investment banker and former hedge fund founder and manager Michael Ashker.

"Good Eats Grocer" is just one of numerous enterprises M2 Venture Partners is involved in. Those various ventures include a partnership with the Raley's supermarket chain, along with ventures in the high technology, health care and media fields. Mr. Ashker also served as an advisor to fast-growing natural foods chain Sunflower Farmers Markets, arranging $30 million in new financing for the retailer through one of his investment funds last year.

Mr. Teel is fairly well connected in Sacramento himself, especially when it comes to food and grocery retailing. He is the only grandson of Tom Raley, founder of the Raley's supermarket chain, and is thus his generation of the family's only male heir to the family supermarket fortune. Raley's remains family-owned.

Michael Teel worked for the Raley's chain throughout his youth. In 1983 he left to pursue what he calls academic interests. Following that, he started his own advertising agency specializing in the food industry. He returned to Raley's in 1988. He rose to become president of the supermarket chain in 1996, and then became CEO in 1998, when long-time company CEO Charles Collings retired.

Michael Teel left Raley's a few years ago to pursue investment and entrepreneurial efforts like his M2 Venture Partners group, which the small-format "Good Eats Grocer" chain is a product of.

The two Michaels, Teel and Ashker, said they spent over a year formulating their concept for the prepared foods bistro-specialty foods market.

The partners also demonstrated how well-connected they are in Sacramento by beating out Whole Foods Market, Inc. for the lease on the 32nd Street and Folsom Boulevard restaurant building and site in East Sacramento where the first "Good Eats Grocer" market will open.

Whole Foods Market planned to acquire the building and then level it, purchase land surrounding the site, and build a large, multi-level Whole Foods natural foods superstore in the prized location. It would have been Whole Foods' second Sacramento superstore. The supernatural foods grocer currently is looking for a new site for its second store in the city.

However, even though the Whole Foods Market, Inc. offer was a lucrative one, the family that owns the former restaurant and surrounding property, decided to go with the two local entrepreneurs instead.

Besides it's location, one of the key reasons the partners say they wanted the East Sacramento site for the first store of their chain is because the existing restaurant building has a large, well-appointed kitchen in it. M2 Ventures says it plans to make the kitchen area the centerpiece of the bistro and natural-organic-specialty foods market, completely remodeling the building around it to create the market. They will keep much of the existing building shell and interior because they want to preserve as much of the building's local character as possible, they said.

The "Good Eats Grocer" market will feature a gourmet chef running the kitchen. Quality foods will be prepared and served in-store, as well as offered to go. Wines by the glass also will be offered in the bistro, and the market will sell an extensive selection of wines by the bottle, along with its selection of domestic and imported natural, organic, specialty, ethnic and gourmet food and grocery items.

Teel and Ashker also have brought in veteran specialty and gourmet foods retailer Carl La Force as chief operating officer for the "Good Eats Grocer" chain. He recently moved to Sacramento from Portland, Oregon to join the company.

For the last few years, Mr. La Force has operated his own grocery and food service consulting firm. He has over 30 years experience in the specialty and gourmet foods industry. For example, he was instrumental in the development and opening of the Metropolitan Market specialty and gourmet foods chain in Seattle, Washington.

Prior to that, he opened the flagship store of the upscale Larry’s Markets in Washington state. Mr. La Force managed the store for 5 years, getting numerous industry awards for innovative merchandising. According to Michael Teel, Mr. La Force also brings an unequaled passion for fine foods to "Good Eats Grocer." "He has spent the better part of his career developing contacts and networks of the obscure and pure traditional artisan producers of fine foods around the world," Mr. Teel says.

The "Good Eats Grocer" bistro-markets plan to offer a wide selection of artisanal natural, organic and specialty foods, along with more common brands and products in the categories.

Unlike Tesco's Fresh & Easy Neighborhood Market, which plans to start opening the first of an initial 19 of its small-format grocery and fresh foods markets in the Sacramento region in early 2009, the small-format "Good Eats Grocer" stores won't sell basic grocery items, according to M2 Venture Partners. Rather, the focus will be on the natural, organic and specialty items, along with the in-store prepared foods.

However, since a major portion of Tesco Fresh & Easy's offering is prepared foods, which are made in a central kitchen in Southern California at present and then delivered to the stores, the new prepared foods bistro and specialty market chain being started by the two local Sacramento businessmen will be a direct competitor for that portion of Fresh & Easy's offering.

In that way, the "Good Eats Grocer" format is more like Wal-Mart's upcoming Marketside small-format grocery and fresh foods stores, which the mega-retailer plans to start opening in the Phoenix, Arizona Metropolitan region this fall.

The Marketside stores will feature a kitchen in-store, along with seating for about 10 customers at a time. Prepared foods for takeout also will be offered at Marketside.

Marketside parts company with Good Eats there though and joins Tesco's Fresh & Easy in that it too will offer a selection of basic food and grocery items at discount prices like Fresh & Easy stores do.

However, based on information from our sources, it's likely Marketside will offer a greater selection of natural, specialty and gourmet foods than Fresh & Easy stores do, along with its assortment of basic food and grocery items.

M2 Ventures didn't provide a timetable regarding when it will start rolling out other "Good East Grocer" stores after the first one opens later this year. However, the company says their plans are for a fairly substantial prepared foods/specialty foods retail venture in the Sacramento region, far beyond the one bistro-market set to open before the end of this year.

Teel's decades of experience at Raley's, which is a leading prepared and natural-specialty foods grocer, should be put to good use in the new small-format bistro-market venture.

Additionally, since both partners are well connected in Sacramento's business, real estate and political world's, finding good locations for the bistro-markets should be much easier than it normally would be for an out of the area operator and retailer.

Further, since both Teel and Ashker also are extremely well known in Sacramento and the surrounding region, they should be able to garner lots of publicity for the venture prior to the first bistro-market opening, and long after that.

Monday Morning Java: Coffee Industry News, Analysis and Insight to Start Your Week Off With a Jolt

McDonald's premium coffee is black gold, Starbucks calls a timeout, Wegmans "Coffee U," Raley's and Peet's get married, Celestial java...and more.

McDonald's (Premium) Black Gold: Consumers' wallets and purses might be near-empty because of the current near-global economic malaise, and their confidence in the economy even emptier, but they still need that coffee-fueled jolt of java to get them started each morning. And, they're willing to spend a little bit more per-cup in order for it to be a premium coffee buzz.

After all, when the home equity line of credit and credit cards are all tapped out--and as a result buying a new car, remodeling the house, or taking a major vacation are out of the question--a cup of premium roast coffee or a premium blend latte or cappuccino can be an affordable luxury that doesn't break an already severely injured bank account.

But the economic bad news' timing couldn't be better for international fast-food retailer McDonald's it seems. The company's big push to introduce premium coffee drinks in its U.S., European, Russian, Asia Pacific, African and Middle-East region stores about two years ago is paying big dividends for the fast food giant. McDonald's Corp. has just reported a double-digit increase in same-store sales in all of the above national markets where it has stores.

The primary driver of these major same-store sales increases are the chain's premium coffee drinks, along with some new breakfast items it introduced at about the same time, according to a McDonald's spokesperson.

The world's number one fast food retail chain reported that overall sales from its stores open at least 13 weeks soared nearly 12% over a year earlier , demonstrating that while the poor economy is hurting many upscale retailers, its actually seems to be helping middle of the road McDonald's and its sales of premium coffee drinks.

U.S. same-store sales growth increased by 8.3%--do primarily to the premium coffee drinks--over the same period last year. European and Russian same-store sales growth was even more impressive, growing by a whopping 15.4 percent, compared to the same period last year. McDonald's same-store sales in the Asia-Pacific, Africa and Middle-East regions rose 10.9%, with China, Japan and Australia contributing the highest percentage of that nearly 11% rise.

The chain's premium coffee drinks aren't yet available in all of its U.S. and international market restaurants. However, the consumer feedback--and sales numbers--are positive for the about 1,000 stores currently offering premium roast coffee and premium quality coffee drinks like lattes, espresso, cappuccino's and other Barista-made drinks.

Most analysts say they are especially surprised at McDonald's strong 15-plus percent same-store sales growth in Europe. These analysts attribute that astounding growth in a part of the world not all that famous for its love of fast food, primarily to the new, premium roast coffee and coffee drinks, as well as to the fast food retailer's introduction in Germany of 100 of its new McCafes, which are the chain's version of a Starbucks-style upscale cafe. McDonald's has McCafes in the U.S. and elsewhere, and plans on opening more. The upscale little McCafes are becoming extremely popular in Japan, for example.

Additionally, these analysts tell us McDonald's has upgraded the look and menu selections, including adding premium coffee drinks, in many of its stores in the United Kingdom and France. This, they argue, has brought many new customers to the stores in those nation's. In fact, France, of all places, has become McDonald's most profitable country outside of the United States.

Starbucks Takes A Timeout: On Tuesday evening, February 26, every Starbucks cafe in the U.S. closed for three hours so that the company could spend that time reinforcing the "Starbucks Way" to its employees: teaching them to be friendlier, more neighborly and more...well "Starbucksier," if you will allow us to use that word.

The three hour training break (we almost said coffee break but that would be redundant) was the brainchild of Starbucks' founder and once again CEO Howard Schultz. He was recently brought back in as CEO from his bigger-picture position of Chairman because the mega-coffee retailer (Schultz would hate that term) was floundering sales-wise and Wall-Street analysts' approval-wise.

For at least two years before assuming the CEO position for his second run, Chairman Schultz had been regularly warning the company via his blog, internal emails and in face-to-face talks, that it had strayed from what has made it successful: being a neighborhood cafe in the European style, a third place where people don't visit to merely get a cup of coffee but to hang out, read and converse as well. (Think the bar on the TV show Cheers.) The problem, Schultz says, is the Starbucks (which we note is only 37 years old) needs to recapture "the soul of its past."

Schultz also repeated over and over Starbucks had lost its new product innovation mojo, and that this combination of factors threatened to end its rapid-growth plans, as well as send its stock price on a never-ending downward spiral. The Wall Street analysts agreed with that last comment. Starbucks board of directors ultimately agreed a couple months ago as well, firing the then CEO and urging Schultz to once again assume that position and role , along with remaining Chairman.

So, for three hours on February 26, associates at all of the cafe chain's U.S. stores were given the Howard Schultz mantra, which built the cafes into the huge success they've become today: be more friendly, remember Starbucks is much more than a coffee shop, know your customers because they are your neighbors, and more.

However, since all of the Starbucks cafes across America closed at 5:30 pm--and didn't open again until 9pm--more than a few customers who showed up for their after work coffee drink or before work java-jolt for the millions who work the late shift were taken by surprise by the locked doors and sign on the door informing them of the three hour "training closure" despite the fact Starbucks announced it in the stores weeks earlier, and the media wrote about it days before.

The March 11 edition of Advertising Age has an interesting piece about a study done by the Aegis group, which found Starbucks did a good job informing consumers about the closure but failed to report the most important part--why it was closing for the three hours. (Of course, those tens of thousands of customers who tried to get a cup of coffee and hang out at their third place between 5:30pm and 8: 30 pm that evening might disagree with the first part of the study--that the company did a good job in communicating the closing part--as well.)

But we digress. The Ad Age story on the Aegis Group's study is an interesting piece of research and knowledge for retailers of any type or format who may be planning a similar three hour closure--although in the case of supermarkets they would rather die than lose even three hours' sales--or for that matter merely in need of improving their communications programs. That's something nearly all retailers have a need to do.

Increasing Starbucks' 'Friendliness Quotient': Research firm Aegis Group isn't the only one studying the retail coffee chain's three-hour closure event. Jon Carroll, the long-time columnist for the San Francisco Chronicle, has not only analyzed the mega-coffee retailer inside out--especially since he now goes to his local Starbucks which is something he avoided for years--he's done so with his own tongue planted firmly in his cheek.

In this column, Carroll offers Starbucks six "Big Idea" innovations which he says will not only allow the cafe chain to recapture "the lost soul of its past" as CEO Schultz believes is needed, but will also allow the company to increase its "friendliness quotient," which was one of the chief objectives to the three hour cafe-level employee reorientation on February 26. [Read Jon Carroll's column here.]

Starbucked: In case you're craving more Starbucks news like a haggard shopper craves a double-mocha latte after spending hours in the mall, may we suggest this interview in the Christan Science Monitor with author Taylor Clark about his fairly new book, "Starbucked: A Double Tall Tale of Caffeine, Commerce and Culture." We just started reading the "Starbucked" book and came upon this review in the Monitor by journalist Clayton Collins. It's short, well done and informative.

Coffee Retailing Notes

Wegmans Sends its Associates to Coffee U: Speaking of training in the art of coffee brewing, upscale East Coast USA grocery retailer Wegmans Food Markets has launched a training program designed to equip it store associates with all the skills needed to brew the "perfect cup of coffee," according to the company's senior vice president for customer affairs Mary Ellen Burris, who wrote about what the retailer calls its new "Coffee University" program in her weekly online column on the retailer's website.

Rochester, New York-based Wegmans created the program in partnership with its coffee roaster, Yonkers, New York-based Barrie House. The "Coffee University" course "provides the first of three barista certification levels, as well as covering the American cup of coffee from the ground up", Burris says.

The course follows guidelines used in Italy to among other things create a perfect shot of espresso. In fact, the "university-level" trained barista's will even have a new blend of espresso to practice with in the stores, which Barrie House roasters has developed as another way for Wegmans to improve the quality of its premium, in-store coffee drinks.

Peet's and Raley's Get Married: As a part of its goal to expand the number of in-supermarket coffee shops it currently has, Emeryville, California-based premium coffee roaster and marketer Peet's Coffee & Tea, has scored a big hit with Sacramento, California-based Raley's, which operates 129 supermarkets in Northern California and Nevada under the Raley's Superstores, Bel-Air Markets, Nob Hill Foods and Food Source banners.

That big score? Peet's will put coffee kiosks in 100 Raley's-owned supermarkets over the next three years. The kiosks will be mini store-within-a-store versions of Peet's stand alone retail coffee houses. The Peet's kiosks are similar to those Starbucks has in thousands of supermarkets and big box bookstores across the U.S.

Prior to 2002, Peet's was primarily a coffee roaster and retailer which operated its own stand-alone coffee shops, primarily in Northern California's San Francisco Bay Area where the company is based. The coffee company also had a line of packaged premium coffee products but they were sold primarily in specialty stores or very upscale supermarkets.

In 2002 however, current CEO Patrick J. O'Deo joined the company with the mandate to grow sales. The centerpiece of O' Deo's growth program was to dramatically increase distribution of the roasters packaged coffee items into supermarkets nationally in the U.S., along with creating new products to sell in this channel.

In the last five years, distribution of the company's coffee products into supermarkets has grown significantly--and O'Dea goal is to continue that rapid distribution growth. Currently Peet's brand coffee products are in about 5,700 U.S. supermarkets. CEO O'Dea has set a goal to grow that to 8,000 supermarkets in the next two -to- three years.

As part of his supermarket growth plan, the CEO also is pushing to get the kiosk style coffee shops into a number of upscale supermarkets like the program just inked with Raley's. Peet's also is expanding the number of stand-alone cafes is operates, including in states outside of California. The company currently has 170 of its own retail stores. Most are on the west coast, but others are in Denver, Chicago, Boston and Austin, Texas. Plans call for additional geographic expansion in the U.S.

Peet's had sales of $249 million in 2007, which was an 18% increase over the previous year. The Raley's deal alone should add some solid numbers to fiscal 2008 sales. It also will extend Peet's brand identification and awareness, which should help increase sales of its products in the supermarket channel of distribution.

Free Fair Trade Coffee for Cancer Support: ATM, the pioneering British Fair Trade Coffee-on-the-go cafe chain, held what it billed as the largest-ever free coffee morning in the United Kingdom at London's Liverpool train station on February 28. The "coffee morning" event started in the wee hours (about 4:am) of the morning and finished-up around midday. The event was held in support of the Macmillion Cancer Support Center.

Tens of thousands (maybe hundreds of thousands) of London's commuters were given a free cup of ATM's premium roasted Fair Trade coffee in return for simply providing there name to the coffee retailer on a slip of paper that the commuters could either download from the web and bring with them to Liverpool Station. Not bad: the busy commuters didn't even stop off at the ATM machine in order to get money to buy their normal morning cup of ATM on-the-go Fair Trade coffee that morning. And a good cause was supported to boot.

Coffee Industry Notes

Celestial Coffee: Celestial Seasonings, which is one of the strongest brands in the specialty tea category, is launching a new line of organic, Fair Trade certified whole bean coffees under the brand. This will be the brands, which is owned by Hain-Celestial, Inc., entrance into the highly competitive, fast-growing organic and Fair Trade segments of the coffee category.

Five coffee varieties will initially be launched under the Celestial Seasonings brand. They are: Morning Thunder, Decaf Morning Thunder, French Roastaroma, Caramel Mocha and Vanilla Hazelnut.

We kind of like the name French Roastaroma. It's nice word play on the popular french roast variety of coffee bean, which nearly every consumer has heard of. Morning Thunder, if you aren't already aware, is the name of one of the Celestial Seasonings brands' most popular varieties of tea. It has a higher than normal caffeine level compared to the other varieties, hence in part its name.

The Soaring Cost of That Morning Java Jolt: Retail prices of coffee at the grocery store and cafe are rapidly increasing along with nearly every other food and grocery item. However, in the case of coffee, the price increases have been even higher over the past than they've been for wheat, dairy and other essential foodstuffs (yes, coffee is essential). in just the last six months alone, world coffee prices has risen by 23%, and the price surge is far from over.

At the supermarket, a typical 13oz pkg of ground coffee has increased in price by $1.00 since last year, according to a recent price survey conducted by the Los Angeles Times. In July, international coffee house retail chain Starbucks increased the price of its drinks in its stores, and its competitors generally followed the leader.

Further, large and small coffee roasters and marketers are increasing their wholesale prices to supermarkets and other coffee retailers, so another round of coffee price increases is coming up. Retailers have tried to contain their price increases but aren't about to lose margin on items in the category. This is especially true since the overall food and grocery product inflation that's occurring makes it easier for grocery retailers in particularly to pass on price increases.

The primary reason behind soaring coffee prices seems to be the low value of the U.S. dollar. Rapidly-rising global energy costs--which affect everything from coffee bean production to transportation of the finished product to warehouses and retail stores--also is a big factor. The Los Angeles Times recently examined the soaring price of coffee. Read about some of their findings here.