Gelson’s Ripe for Big Expansion Following Sale

The sale of the Gelson’s to a high-powered private equity firm will likely accelerate the expansion of the upscale grocery chain as competition continues to stiffen in the local industry. Gelson’s, headquartered in Encino, is being sold by Arden Group Inc. to TPG of Fort Worth, Texas in a deal valued at $394 million. The transaction is expected to close by March. TPG’s retail portfolio already includes the Burger King restaurant chain and upscale retailers J. Crew and Neiman Marcus Group. In November, Gelson’s opened its first new store since 2001 in Long Beach, and a new store is planned for La Canada Flintridge this spring, said Rob McDougall, president of Gelson’s for seven years. A financial infusion from TPG will allow Gelson’s to add more stores. “They see there is growth in Southern California and possibly further,” he said. “They wanted to make sure we were going forward and keeping the brand identity.” The chain was founded in 1951 in Burbank by brothers Eugene and Bernie Gelson and grew to 17 locations throughout Southern California including stores in Calabasas, Encino, Sherman Oaks, Tarzana, Valley Village and Westlake Village. In 1966, the founding brothers sold the company to Arden, based in Compton. In July, the Arden board of directors said it would be looking at strategic alternatives for the company including a possible sale. With the Gelson’s acquisition, TPG enters one of the most competitive markets for grocery stores in the U.S. Not only are there other stores from high-end chains such as Whole Foods Market Inc., in Austin, Texas, and Bristol Farms Inc., in Carson, but long-established competition from Ralphs, a subsidiary of Kroger Co., in Cincinnati, and Vons, a division of Safeway Inc., in Pleasanton. There also are new entrants such as the grocery delivery service from online retailer Amazon.com Inc., in Seattle, said Kevin Coupe, founder and editor of MorningNewsBeat.com, a business blog on the food industry based in Connecticut. The challenges of the market are best exemplified by the experience of Tesco PLC, a British retailer, which opened more than 200 of its Fresh & Easy Neighborhood Market Inc. stores in Los Angeles and the western U.S. starting in 2007 – only to file for bankruptcy in 2013. Billionaire Ron Burkle stepped in to buy up 150 of the stores. “We know how difficult it is to break into that market, just look at Fresh and Easy,” Coupe said. More than any other industry, differentiation is a key to success for grocery stores. While Gelson’s has nice stores and has done well in its market niche, that is no longer going to be enough, Coupe said. Gelson’s needs to open stores in upscale neighborhoods where residents are inclined to spend disposable income on quality food. McDougall said the chain is fully aware of how it must evolve, with the Long Beach store to be the new model. It will feature an extensive selection of organic and natural foods, grab-and-go deli foods, a wine bar and an outdoor seating area.