Fresh Market’s sudden closures stun shoppers but not retail analysts

Published: Friday, Mar. 7, 2014 - 9:37 pm

For customers, it’s like a dropped casaba melon. The abrupt announcement this week that three Sacramento-area Fresh Market Inc. stores are closing their doors hit loyal customers hard.

“I’m totally crushed,” said Ken Smith, pushing a cart filled with Honest Fizz root beer, stuffed olives and deli salads Friday at the Fair Oaks Boulevard store. “It’s a wonderful atmosphere to shop, the staff and checkers were terrific. And they make killer brownies.”

Brightly lit with warm woods, green-striped awnings and bistro decor, Fresh Market stores feature an upscale mix of olive oils, fresh meats and seafood, cheese and bakery goods, as well as gleaming fresh produce and trendy snack items, like Krave Jerky and artisan Z crackers from New York.

“If Trader Joe’s and Whole Foods had a child, this would be it,” said Smith, a public-relations consultant, who said he stops in the store several times a week.

Another regular customer, Marquis Skold, who works in marketing at a nearby law firm, said she “could almost cry” at the thought of the store’s closure. “I never thought the prices were outrageous, considering the quality and the presentation. It’s a beautiful store. We need more places like this that offer organic produce.”

The three locations – 7707 Laguna Blvd. in Elk Grove, 2030 Douglas Blvd. in Roseville and 2339 Fair Oaks Blvd. – are among four stores the Greensboro, N.C.-based company announced Thursday it was closing because of “poor profitability.” The chain of organic markets operates 151 stores in 26 states, including two other California locations in Palo Alto and Santa Barbara.

Beyond customer disappointment, Fresh Market’s exit is another example of the uber-competitive grocery industry, where profit margins are slim and competitors loom large. Nationwide, grocery store consolidations and closures have been common in recent years as stores battle each other for market share, squeezed between discounters like Costco, Target and Wal-Mart on one end and gourmet, organic chains like Nugget and Whole Foods on the other.

Robert Reynolds, a retail grocery analyst based in Moraga, said Fresh Market likely faced challenges when it jumped cold into this market, opening its first California store at Roseville’s Rocky Ridge Town Center in 2012, then adding the Elk Grove and Sacramento locations last year. “To come in that quickly, you better have a formula that is well-placed and well-proven someplace else. It wasn’t a situation devoid of competition, on the high end or the low end.”

Reynolds, who grew up in Sacramento, said one of the company’s hurdles may have been hiring local staff and managers who could deliver the chain’s special brand of customer service and food presentation.

“It’s a difficult challenge to do that. It doesn’t happen overnight. I would suspect that was a big part of their problem. … Once you turn off a customer, they don’t come back. And they all have great alternatives.”

In its fourth-quarter earnings conference call on Thursday, Fresh Market president and CEO Craig Carlock said the Sacramento closures, along with a fourth store in Houston, were partly due to a change in its traditional strategy of store openings. Instead of coming into a new market gradually, training staff and building a word-of-mouth customer base, the chain opted to move in quickly with multiple stores, which Reynolds likened to a “marketplace assault.”

Carlock said the three Sacramento stores lacked “brand awareness” and were an overall drag on the company’s profitability. Rather than expend more time and money in hopes they’d gain traction, Fresh Market decided to pull the plug. For 2013, it attributed operating losses and preopening expenses losses for the four stores at $6.9 million. Lease liabilities, severance and other expenses related to closures will cost the company another $18 million to $20 million this year.

But the chain is not backing out of California entirely. Last year, sales at the Palo Alto and Santa Barbara stores “substantially exceeded” those at each of the three Sacramento sites, Carlock said. The chain, while focused on its “core geographies” east of the Mississippi River, will open another 25 stores in 2014, including one in Yorba Linda in Southern California.

In its online newsletter to customers, the Fair Oaks Boulevard store said it will be closing on March 12. All regular-priced merchandise is 20 percent off through Sunday. The other two locations are slated to close within the week as well.

Inside the Fair Oaks Boulevard store, the manager declined to speak with a reporter. An employee said the staff of about 90 to 100 wer notified recently of the closure and were to receive full pay through May 6. Employees can apply for transfers to other Fresh Market stores, he said.

Mark Engemann, a Colliers International commercial real estate vice president in Sacramento, who handled the Fair Oaks Boulevard store lease, said it’s “a natural high-end grocery location,” tucked adjacent to the upscale Pavilions shopping center and surrounded by professional offices and residential neighborhoods.

“The neighborhood wanted them to succeed. Their customers wanted them to succeed,” said Engemann, who predicted the site might get interest from other organic grocers already in the region, such as Nugget or Sprouts.

He said the 27,500-square-foot store had a “solid supermarket lease,” but declined to state exact length or terms. The building is listed for sale for $6.9 million.

The 11,821-square-foot Roseville store is for lease. Details on the Laguna Boulevard location were not available.

As for the chain’s sudden departure, Engemann said it may have been because Fresh Market failed to execute its vision. “If you’re going to be a top-tier store, it needs to be a top-quality operation. Their concept and their application were not equal,” he said. “It’s just like a restaurant: People give it a chance, but if you’re not performing, there are alternatives.”

With less than a week left and merchandise marked down 20 percent this weekend, customers like Skold are saying goodbye the all-American way. “I’m coming back tonight to stock up the freezer.”


Call The Bee’s Claudia Buck, (916) 321-1968. Read her Personal Finance columns at sacbee.com/claudiabuck.

Read more articles by Claudia Buck





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