Niche Markets

It’s been another exciting year on the California grocer front. Haggen exited just as quickly as it entered. Fresh & Easy finally threw up the white flag and retreated. The Fresh Market decided California was just too high maintenance and high-tailed it for the comforts of the East Coast.
But we’re just getting started. Gelson’s discovered it could capture even more of the California cool and expanded. Whole Foods created a no-frills “value-oriented” store. Grocery Outlet looked to stand out with its independently owned, every-store-is-unique approach. Aldi entered the state offering steep discounts in simple store designs.
With plotlines like these, it’s hard to believe we’re talking about companies known for private-label, low-sodium canned green beans and organic grapefruit displays. All this action is akin to the soap operas that shoot at CBS Studios in Los Angeles (there’s a Gelson’s nearby), but in the uber competitive world that is California’s grocer landscape, it’s just another day in Aisle 7.
“California is a very difficult place to penetrate because it’s so large and there are so many different options,” says Donald MacLellan, senior managing partner of Faris Lee Investments in Irvine. “As a general comparison, it also has a significant amount of diversity in demographics across the socioeconomic and cultural spectrum. Like anywhere else, the challenge for grocery stores is fighting for the same consumer dollars. If new concepts are entering the market, they also have to wage the often losing battle of competing with established grocery operators who have loyal customers.”
If the buzz surrounding grocer expansions, spin-off concepts and foreign arrivals sounds familiar, it’s because we’ve heard that one before. This most recently – and notably – occurred when Bellingham, Washington-based Haggen swiftly opened 83 locations in the Golden State. The family founded chain purchased a slew of Albertsons-Safeway merger’s anti-monopoly requirements. Haggen filed for bankruptcy in September 2015.
Fresh & Easy met a similar fate. The El Segundo, California-headquartered chain was British supermarket maven Tesco’s first foray into the U.S. Despite an acquisition by Yucaipa Companies’ Ron Burkle, the U.K. way of packaging, marketing and selling groceries never really resonated with stateside consumers. Fresh & Easy filed for bankruptcy in October 2015.
Greensboro, North Carolina-based gourmet supermarket chain The Fresh Market has experienced success in the South and on the East Coast, but found no such luck in California, where it closed the remainder of its six stores in March.
The shakeup has many wondering if California’s grocer landscape is just too saturated. After all, is it really that unreasonable to remain skeptical about a whole new crop of grand openings on the heels of the aforementioned demises? MacLellan believes it is unreasonable, citing very specific reasons why these three failed to capture California and, in some cases, other states.
“Haggen expanded too quickly and Fresh & Easy misunderstood the market,” MacLellan says. “The Fresh Market only opened up a couple stores in California and pulled out of the market. These stores also lacked a brand identity, which is crucial to draw new customers out of their tried-and-true store brands.”
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