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The Supermarket Wars

Specialty grocers take on big-box stores for dominance; some won't survive

Bessie Morris went into Bayview’s new Fresh & Easy supermarket for the first time last Sunday. She needed to pick up just some ground turkey and sandwich cheese, but one thing led to another.

“They’ve got so much healthy, different stuff here, and prices were pretty good; I just couldn’t stop,” Morris said, laughing and gesturing to her cart. It is almost full, with prepared meals, salad greens, even a few exotic spices.

Morris may not know it, but she is Fresh & Easy’s model customer: someone who appreciates the well-curated selection of a specialty grocer but with the discount prices of a mainstream supermarket. Since March, the company has opened 11 stores in the Bay Area, with many more in the works. Fresh & Easy is rolling the dice that Ms. Morris’s shopping patterns are not unique.

The company is trying to capitalize on the cultural and economic trends that have brought huge changes to the local grocery store business over the past five years. Squeezed by expensive purveyors of organic, local and artisanal products on the high end and discounters like Costco and Wal-Mart on the low end, as well as a slow economy, traditional supermarket chains are reeling, with store closings and bankruptcies sweeping the sector.

The venerable Bay Area chain Andronico’s Community Markets, a family-owned company with seven stores in the region, filed for bankruptcy protection two weeks ago and has just announced it will sell itself to a private equity firm through its Chapter 11 filing. Its troubles follow those of Delano’s IGA, which closed last fall after a failed expansion effort that included taking over troubled Cala/Bell Foods. In 2006, the supermarket giant Albertson’s began closing all its San Francisco stores.

The last traditional supermarket chain to open a branch in the city was Safeway, in the South of Market district, in 2004.

By contrast, the Whole Foods supermarkets chain, with its focus on high-end natural foods, is thriving, opening its fifth San Francisco store this spring. Many of the organic and specialty food stores that compete with Whole Foods are thriving, too. And Trader Joe’s, with a range of specialty groceries at discount prices, will soon take over San Francisco’s last Cala Foods, on Nob Hill.

Now Fresh & Easy, owned by the British retail giant Tesco, is entering the market with its own style of grocery. The company opened its first American store in November 2007; since then, the chain has rapidly built an empire of 177 stores in Arizona, California and Nevada. It often moves into areas where other grocery stores have failed or into historically underserved “food deserts.” Its recent opening in Bayview, for example, was the neighborhood’s first new supermarket in over 20 years.

The company has sustained heavy losses on its United States operations thus far, but it says it has big plans for San Francisco. Besides the Bayview location, Fresh & Easy opened a store in the Outer Richmond in June, and has stores planned in Portola and the Mission. Brendan Wonnacott, Fresh & Easy’s communications director, said more openings were coming.

Tesco’s United States strategy is based on intensive market research. The company embedded researchers with 60 American families for weeks, inspecting their refrigerators and pantries, and videotaping them cooking and shopping.

The formula that emerged was a small-form, highly automated supermarket, with a split focus on low-cost traditional grocery items and locally sourced, healthy and natural foods.

Upon its arrival in San Francisco, Fresh & Easy opened an aggressive campaign against Whole Foods, with billboards bearing slogans like “Wholesome food, not whole paycheck.” The store also does a price-by-price comparison with Safeway next to many of its products.


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