Jan 062012

Despite community opposition, the San Leandro City Council is set to approve the development of the old-Albertson’s property downtown into yet another strip mall, euphemistically dubbed “Village Marketplace“.  The anchor of the mall, occupying slightly less than half the total space, is supposed to be a branch of the “Fresh & Easy” grocery stores – but it’s just as likely that it will actually be a Wal-Mart, San Leandro’s third.

Fresh & Easy is a chain of small grocery stores, mostly located in California.  It was started in 2007 by British supermarket giant Tesco as a daring attempt to break into the American grocery market.  They modeled it after their own successful grocery stores back in England, offering assorted dry goods, packaged fresh vegetables and meats while emphasizing  frozen and refrigerated prepared meals and private labels.  They save costs by only using self-checkouts and running bare-bone stores.

So far, Fresh & Easy is not doing well.  In the four years since it opened it has lost $1.1 billion, while sucking up $1.5 billion in capital.  Fresh & Easy now recognizes it failed by attempting to impose the UK model onto the US market and it’s starting to revamp its stores to make them more appealing to American tastes.  It’s putting homey touches on the clinical decor, adding bakeries and loose produce and introducing loyalty cards.   But all of this ads cost while providing uncertain results and Fresh & Easy is running out of time.  Tesco’s brand-new CEO has suggested that Fresh & Easy must break even by the the beginnings 0f 2013, analysts believe if it doesn’t, Tesco will cut their losses.  It won’t be the first time; in August Tesco pulled out of Japan, closing its 129 stores.

So what happens if Fresh & Easy closes?   The Financial Time suggests that Walmart may pick up its crumbs.  Indeed, Walmart has been posing to compete with Fresh & Easy for a while.  Currently, it is pushing its Neighborhood Store concept in the Bay Area, but it’s also starting a new chain of even smaller stores dubbed Wal-Mart Express.  This stores are set to copy and provide competition to the very profitable dollar stores that have popped out throughout the country.  Walmart plans to open hundreds of these stores in the coming years, acquiring existing retailers to speed up the process.  While Wamart’s fortunes have also been declining, it has the knowledge of the US market and the buying power to succeed where Tesco has failed.  Village Marketplace’s developer, David Irmer, has previously spoken on the difficulties of finding tenants for the development, so it’s unlikely that Walmart will have much in the way of competition if it decides to move to that space.

It’s also unlikely there would be anything City Hall could do.  Once the city sells the property to Irmer (for half of what it paid for it in 2009), it will be up to Irmer to decide who he rents it to.  In the past, the City was able to use the Transit Oriented Development plan to keep Grocery Outlet out of the location, but once it permits Fresh & Easy to operate a grocery store on that property, it will need to allow any other company to do the same.  This is exactly what happened when Wal-Mart decided to open a second San Leandro store at the former Target property on Hesperian Blvd.

I can only hope that City Council members will take the issue of whether this is how they want Downtown San Leandro to develop.