Sprouts is readying space at Brown and Gilbert roads in Mesa for its fifth Arizona grocery store — the third in the East Valley — scheduled to debut March 19. Albuquerque, N.M.-based Sunflower Markets, which has stores in Scottsdale and Gilbert, is coming next to Tempe.
“Wal-Mart is destroying the small businesses of Arizona, and it’s time people wake up and do something about it,” said Johnny Basha, senior vice president of Chandler-based Bashas’, at a recent shopping center forum.
But, in fact, the small supermarkets such as Sprouts and Sunflower are flourishing, sometimes smack in the shadow of the giant.
“We have a store across the street from a Wal-Mart Supercenter in Albuquerque, and we do fine,” said Bennett Bertoli, vice president of real estate for Sunflower Markets. “Statistically most people look at grocery shopping as drudgery, and it’s more drudgery to shop in a Wal-Mart Supercenter. In smaller groceries, it’s a different kind of shopping experience.”
Bertoli said the company specializes in fresh produce and low prices and in many cases provides a secondary shopping experience for customers of the big supermarkets and Wal-Mart.
Sprouts also has found its niche in Arizona, and convenience of shopping close to home and in a smaller format is a major attraction, said Seth Brown, the company’s vice president for store development. While traditional supermarkets are designed around merchandisers, the company tries to design its stores around the shopper, he said.
Alternative grocery formats such as the niche grocers and the dollar stores are nabbing increasing chunks of the Arizona grocery business, said Gordon Keig, vice president of Phoenix-based Korwasser Shopping Center Properties. They are flexible, offer products and services that the big stores can’t or won’t, and they can tailor stores to neighborhood needs.
Most important, the small chains are cost conscious and price conscious, and that keeps them competitive, Keig said.
“They are leaner and meaner and can take advantage of older locations,” he said. Small chains such as Sprouts and Sunflower, national specialty chains such as Trader Joes, and dollar stores such as 99 Cents Only, have filled up lots of the 25,000 to 35,000-square-foot store spaces vacated as a result of the mass consolidation of the local supermarket industry during the last 10 years.
Bashas’, which spawned two alternative formats — Food City, which caters to the Hispanic community, and AJ’s, which caters to gourmands and big spenders — also filled some of those spots with Food City stores. Finding a niche that Wal-Mart and the big supermarket chains can’t fill is the key to success of the alternative formats, said Chuck Gilmer, editor of The Shelby Report, which provides statistics and assessments of the industry.
“The natural foods segment and price operators (dollar stores) are doing very well,” he said. “And some purposely locate near the bigger stores to (take advantage of) the traffic.”
In Arizona, according to The Shelby Report, the alternative grocery sellers have only a small sliver of the shopper pie. Combined, they only ring up about 11 percent of the grocery shopper dollars. Wal-Mart, despite hand-wringing by conventional chains, has only a slightly larger chunk. Fry’s, which gobbled up several smaller chains to build its current empire, has more than double the market share of Wal-Mart in Arizona. Safeway and Bashas’ also have a considerable lead on Wal-Mart and the alternative formats in the state.
Super Target, which is building its first two stores in Gilbert pegged to open next year, is unlikely to topple any of the contenders, he said.
Brown said Sprouts has two more stores starting construction and two more planned for this year. “We think we can open a minimum of four to six a year,” Brown said. At least some of the locations he’s eyeing are in the south East Valley, although he wouldn’t be more specific about sites.
Besides the Tempe store, Sunflower is planning to open a couple of stores in Tucson this year, Bertoli said.
And Martin Leon, real estate manager for 99 Cents Only, said he plans to open more local stores.
“We have 14 stores now in the Valley, and we feel we could do another four or five stores here quickly,” Leon said.