From the Business Journal of San Jose (San Jose, CA):

Grocery Outlet Inc. grows; PW market site seeds the way
By Vicki Thompson

Grocery Outlet Inc. plans to invest $1.5 million to renovate its new location on Meridian Avenue, which is set to open in November.

Grocery Outlet Inc. is expanding in Silicon Valley with plans to open at a former Joey Franco's PW Markets location.

The Berkeley based deep discounter will open the new 19,200−square−foot store at 2995 Meridian Ave. in November, according to Marc Drasin, Grocery Outlet's vice president of real estate. He said the company would invest $1.5 million in renovation costs in a portion of the vacant 36,000−square−foot space.

Real estate brokers said Silicon Valley continues to show strength in attracting discount grocers, with Grocery Outlet shopping for other sites in Santa Clara County. The grocer has 150 stores across six western states, including six in Silicon Valley.

"We have an expansion budget for 15 new stores this year," said Drasin of Grocery Outlet, which employs 30 to 40 full− and part time workers in each store, and are independently owned and operated. "We intend to add another 100 stores over the next few years, primarily in urban centers on the West Coast--in California, Oregon and Washington."
He said there's major potential for new Grocery Outlet stores in the San Jose region, given its large population and economic and ethnic diversity.

Jon Stansbury, partner at Terranomics Retail Services, and James Gaglione, a Terranomics associate, represented landlord PanCal LLC in the Meridian transaction, while Jim Fletcher, a Mill Valley based retail broker, represented Grocery Outlet.

The supermarket chain signed a 10−year lease with an additional 20 years of options, Drasin said. Financial terms were not disclosed. Monthly asking lease rates for retail space in the area are $1.50 per square foot. Stansbury said the former PW store at the corner of Meridian and Foxworthy avenues will be divided into small shops. He said tenants are being sought for the additional 16,000 square feet not being taken by Grocery Outlet.

The Meridian Avenue space is the latest former PW location to be leased. Two months ago, officials of New Leaf Community Markets, a Santa Cruz based natural foods grocery
chain, announced they plan to open their first Silicon Valley store in the fall in another former PW market −− a 25,000−square−foot location at Canyon Creek Plaza in San Jose's Silver Creek Valley district. PW shut down last year, closing its last remaining stores in Santa Clara and Alameda counties.

Drasin said Grocery Outlet −− a privately held company founded in 1946 −− sells products on average about 50 percent below traditional supermarkets. Though Grocery Outlet offers a full array of supermarket departments such as meat, produce and bakery, costs are held down, Drasin said. This is accomplished by carrying pre−packaged meats instead of employing on site butchers. He said the mid−sized company also employs a relatively small staff of 125 at its East Bay headquarters.

The no−frills, less service approach is helping discount grocers thrive, according to Neil Stern, senior partner at Chicago based retail consulting firm McMillan−Doolittle LLP. Discount grocers are the fastest growing segment of the industry, he said. "And these are the times when new shoppers are more likely to come in to give them a try," Stern said. "They might stick around when things improve." Last year was a tough one for the supermarket industry in the United States. According to the Food Marketing Institute, overall profits dropped as the frequency of consumers' shopping trips slumped to 1.69 per person, per week −− the lowest number in 62 years. Stern said Grocery Outlet has a cost advantage because of its structure −− many of the individual stores are operated by married couples or families.

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