The fiasco that was Haggen Food & Pharmacy’s attempt to expand into California has left the door open to major players looking to grab more market share, including value grocer Stater Bros. Market. Pete Van Helden, chief executive of the San Bernardino-based chain, said it had been looking to get into Ventura County for roughly three years before Haggen announced it was exiting that market, leaving three Simi Valley locations up for bid. Stater Bros. acquired a store at 660 E. Los Angeles Ave. for an undisclosed price and will open a supermarket there later this year, pending final redevelopment plans and approval from the city. “The challenge has been finding a location that was within our budget and finding real estate that we could build on,” said Van Helden, who became chief executive of Stater Bros. in December. “We’ve had a lot of customer interest in Simi Valley. Folks for one reason or another are aware of us and have been asking us for years to come to Simi. We find the demographic and cost structure to be conducive to our operation.” At present, the company only has plans to open a single store in Ventura County. Though opening a cluster of locations within close proximity would allow for economies of scale, opportunities to bid on stores in close range to one another has proved difficult. Some of the grocer’s closest outlets to the Simi location are in the Santa Clarita and Antelope valleys. “It’s clearly advantageous to open multiple stores in a market for several reasons – distribution, advertising and the sharing of employees,” said Van Helden. “Having said that, opening a single store in the market doesn’t preclude success. We have single stores in Ridgecrest and Mojave, and we do just fine. It’s not a big concern.” The Simi store remains within cost-effective proximity to the chain’s distribution center, according to Van Helden, and will not accrue much additional costs for the company. Now the challenge is carving out a place for itself in the already saturated market. Michael Schiff, executive president and branch manager of NAI Capital’s Westlake Village office, said he anticipates Stater Bros. doing a better job penetrating the market and appealing to the need of shoppers than Haggen. “The challenges that exist anytime you come into a new area are getting customers from stores they’ve been shopping at for years. Stater Bros. will have to steal them away from their favorites,” he said. “But they certainly have the backing and experience, and will know how to do a better job than Haggen did.” Low-price option While Haggen, a chain based in Bellingham, Wash., tried to crack Southern California’s grocery market with a focus on the high end, Stater Bros. will pitch its price-conscious image in Ventura County. It will compete against other discount grocers, including Commerce-based Smart & Final as well as Costco Wholesale Corp. of Issaquah, Wash., and the Sam’s Club chain from Wal-Mart Stores Inc. of Bentonville, Ark. “They’re not coming in from another state. They’re coming in from another county, so it’s much easier to operate. They’re familiar with the territory and they know the customer,” said Matthew May of Encino’s May Realty Advisors. A half-dozen Stater Bros.’ fall within the Santa Clarita and Antelope valleys. May said the grocery chain is known for its discount prices and expansive meat department, and is like a high-end Food 4 Less or a moderately priced Vons or Albertsons. “Stater Bros is a low-priced grocery store,” he said. “They’re a value player in the business. Food 4 Less in some ways is a value player, but Food 4 Less is historically more in some of the ethnic marketplaces. Stater Bros. is not chasing that demographic; their core audience is the blue-collar worker.” Crowded market Co-founded in 1936 by Cleo and Leo Stater, the company’s first grocery opened in Yucaipa during the Great Depression. In 1999, the chain purchased 33 former Albertsons locations and 10 former Lucky outlets, bringing its unit count to 155 stores by the turn of the century. The supermarket chain has 168 outlets in Southern California, including 26 in Los Angeles County, 30 in Orange County and 51 in San Bernardino. “Simi Valley has a lot of retail on a limited population base. There are a few chains that dominate Simi Valley, but I definitely feel there is room for someone to compete with an alternative (option),” said Todd Nathanson of illi Real Estate Group in Encino. “Stater Bros. is probably more familiar with the demographic of Simi Valley and more in tune with the type of shopper (than Haggen was).” When Albertsons Cos. Inc. of Boise, Idaho, bid to acquire Safeway Inc. of Pleasanton in 2014, the Federal Trade Commission required them to sell stores to reduce their combined market share. The Albertsons’ deal with Safeway went through in January of last year. Haggen jumped in to purchase 146 Albertsons, Vons and Pavilions stores. Haggen grew from operating 18 stores and 16 pharmacies in two states to running 164 stores and 106 pharmacies in five states. The operational, marketing and capital adjustment proved too much, and the chain declared bankruptcy in September. “They jumped into the most competitive grocery markets in the country (and) they needed to create a value proposition to differentiate themselves to the consumer,” May said. “People will pay more if there is better quality or better service, but they will not pay more money for the same product in an environment where they’re not comfortable. People like familiarity.” In the wake of the bankruptcy, Haggen left 83 stores available, 13 of which were in the greater San Fernando Valley area. While the Stater Bros. acquisition brings new competition to the greater Valley, other players have picked up locations in the Haggen aftermath as well. For example, Gelson’s Markets in Encino purchased eight California stores – including one in Thousand Oaks – for $36 million. Of the 28 stores Smart & Final purchased for $56 million, four are in the greater Valley area in Newbury Park, Palmdale, Simi Valley and Westlake Village. Haggen isn’t alone in failing to establish a beachhead in the Southwest. Fresh & Easy, a chain originally owned by U.K. retail giant Tesco and later purchased by billionaire Ron Burkle’s Yucaipa Cos., closed 97 stores in California, Nevada and Arizona last year, 30 of which were based in Los Angeles County. “California is a very expensive state to do business in. It’s not the most labor friendly or tax friendly, and you have to have a lot of capital,” May said. Construction on Stater Bros.’ Simi outlet is set to begin within the first quarter of the year, following final approval from the city. “We have not worked with the city of Simi Valley and the county of Ventura County before so we are not familiar with how long the process will take,” said Stater Bros.’ Van Helden. “But we’re confident the store will be completed within the year.” Brian Gabler, economic development director for Simi Valley, said the city is excited to have Stater Bros. take over a closed Haggen store. “Stater Bros. offers another grocery shopping option to Simi Valley residents,” he said in an email to the Business Journal. “The city has received a large volume of phone calls over the past few years from residents requesting Stater Bros. come to Simi Valley.” Two additional Stater Bros. locations in Tustin and Riverside are slated to open this year as well. Though Van Helden said the chain has no official plans to open additional stores in Ventura County or the Valley, the chain is open to any future opportunities that might arise. “As these opportunities come, we will evaluate each,” he said.
