CHANDLER, Ariz. -- Bashas' here is a survivor.
Having outplayed, outwitted and outlasted a host of other independent operators throughout Arizona for over 70 years, Bashas' enters its eighth decade as one of the state's major players, with 135 stores, an aggressive expansion program, and a commitment to a diversity of formats that are keeping it in contention for the Arizona consumer's shopping dollar.
The task is formidable, given that Kroger Co.'s Fry's Food Stores dominate the marketplace, with Safeway and Albertsons also prominently in the hunt and Wal-Mart Supercenters beginning to make its mark.
But Bashas' is confident it can hold its own.
"We've survived for so long because we've focused on serving individual neighborhoods and not so much on share-of-market," Wayne Manning, Bashas' president, told SN. "There's a tendency for national chains that dominate this market to make their decisions from afar, so there's a lack of flexibility in what they do and a lack of knowledge about the local marketplace. But we've been here for 70 years, and we are more flexible than they are and more knowledgeable about filling the needs of the communities we serve."
With a 19% market share statewide, Bashas' is Arizona's third-largest retailer, compared with 32% for Fry's Food Stores, 21% for Safeway, 13% for Albertsons and 5% for Wal-Mart Supercenters.
Bashas' operates stores in all 15 counties in Arizona, and it's willing to go wherever the population goes, regardless of the size of a particular community.
"When we look at other retailers, we see they're not in rural areas, they're not on the Native American reservations, and they're not diversifying formats," Manning told SN. "Now it's called niche marketing, but what we've done over the years is built whatever the community needs.
"We would go to places no one else would go because we're privately owned. One weakness some other companies have is that they won't go outside the metropolitan areas, but we have made a commitment to go wherever we're needed -- that's been our evolving strategy."
Over the last decade or so, the family-owned chain has moved from a conventional format into upscale, Hispanic and rural concepts, as well as tweaking its merchandising to develop stores on several Native American reservations to accommodate the unique needs of that population.
Its formats encompass Bashas', its conventional store banner; Food City, its Hispanic banner; and AJ's Fine Foods, an upscale banner. It also operates Bashas' Dine (pronounced Dee-nay), a format geared to the needs of the Native American population at seven stores on the Navajo Nation reservation, plus three stores on other tribal reservations that operate under the Bashas' name.
"Throughout our history, diversity has been our salvation as a company," Manning said.
Each format is distinctive, with virtually no crossover from any other, he added. "We are very disciplined to each brand and format," he explained.
According to Eddie Basha, chairman and chief executive officer, "We use niche marketing as a force, like guerrilla warfare -- in the Hispanic market, the upscale market, in conventional markets, and on the reservation in partnership with the Native Americans -- and that's given us a lot of the success we enjoy. The business really began to grow when we started acquiring and expanding beyond the scope of our conventional supermarkets."
Looking ahead, Manning said Bashas' plans include the following:
To open 18 stores over the next two and a half years -- the most aggressive new-store expansion program in its history.
To add more customer-service elements to its Food City stores while seeking additional opportunities to convert or build additional Hispanic locations.
To expand AJ's beyond the Phoenix marketplace, with a new store scheduled to open in Tucson in November.
To make ongoing expansions at its distribution center to accommodate volume growth.
Bashas' was founded in 1932 by Eddie and Ike Basha, the father and uncle, respectively, of Eddie Basha. The company's offices here are located about 20 miles south of downtown Phoenix.
Bashas' sales in 2002 totaled an estimated $1.6 billion.
The company operates 133 of its 135 stores in Arizona, with single units in Needles, Calif., and Crownpoint, N.M. Manning said he doesn't expect any out-of-state expansion in the foreseeable future for any of the formats.
Commenting on speculation that Bashas' might introduce AJ's into upscale areas of Southern California or Las Vegas, or expand it to Aspen, Colo., Manning said, "Moving AJ's outside Arizona is probably more of a possibility in five or 10 years rather than at anytime in the near future because we have enough going on in Arizona today to fill out our new-store plans."
Big Expansion Plans
He said Bashas' plans to open 18 new stores in the next 30 months, "and that's a big expansion for a company of our size." Most of the stores will be in southern Arizona, including the Phoenix and Tucson markets, where there's still room for growth, Manning said.
Three of the new stores will be AJ's locations, including a store in Tucson 100 miles south of here -- the first move of the upscale format outside the Phoenix market area.
Bashas' also anticipates additional growth through acquisition, Manning told SN. Over the past decade, the chain has nearly doubled its store count through acquisitions, purchasing 40 stores during the 1990s and another 40 in the last two years, including 33 Hispanic-oriented Southwest Markets in Phoenix in 2000.
"We've acquired many small retailers that felt they could no longer compete," Manning told SN. "We've been willing to step in and acquire a single store and then hire the people that ran it because we pick up a lot of experience from them, and that's given us the knowledge to expand.
"That's part of our commitment. A lot of small retail independent operators have their hearts in their business, and they've served a particular community with heart, sweat and hard work. So by acquiring them and holding onto their people, we allow them to do what they've always done with the same heart but with more financial backing.
"These are people that are committed to what they do, and we re-commit ourselves to them and give them the benefits of size and economics to do an even better job serving their customers with more variety, better pricing and a commitment to their own members. Our whole philosophy is, 'By the people, for the people."'
Food City Conversions
Most of Bashas' growth in the past decade has involved Food City, its Hispanic format, which has grown from a single store in 1993 to 53 stores, accounting for 40% of Bashas' sales.
The original Food City was a one-store phenomenon in Phoenix that opened in 1947 to tap the needs of a growing Hispanic demographic.
"Food City was the single most successful store in the state for years, but we didn't seek it out -- the family that owned it came to us," Eddie Basha recalled. "They said they wanted to get out of the business, and they knew we would treat their people as well as we were treating our own."
At the time, Bashas' had just opened a single Hispanic-format store in Nogales, near the Mexican border, called Bashas' Mercado, "and we were looking to diversify more," Manning explained.
"But it was the people we employed from the original Food City store who pushed us to expand the format. At their urging, we took what we learned from them and developed a model, and then we expanded it as the demographics of various communities changed."
In 1996, Bashas' acquired 16 units of Megafoods, a Phoenix-based chain of 60,000-square-foot box stores that was in bankruptcy. "Megafoods was operating discount stores, and we considered operating that format, but they had not been very successful and the stores had been driven so far down that the brand was broken," Manning recalled. "But when we looked at the demographics around those stores, we decided to convert them to Food City."
Over the years, Bashas' kept converting stores as community needs changed -- to the point that only one of the 53 Food City stores has been built from the ground up.
Late in 2000, Food City experienced a big expansion when Bashas' acquired 22 stores in Phoenix and Tucson from Southwest Markets, a Hispanic-format operator that had been competing with Food City. Most of the stores were small -- in the 22,000- to 30,000-square-foot range, Manning said -- "and they were in bad shape, running just 35% to 40% in-stock because of Southwest's financial condition.
"So we cleaned them up, re-stocked them, improved the quality of the perishables departments, and switched to an everyday-low-pricing program" -- all of which resulted in a sales boost of more than 35%, he said.
According to Manning, Bashas' focus at Food City this year will be on continuing to improve, upgrade and expand the former Southwest stores with new equipment, service meat counters, expanded delicatessens and takeout food sections, and the installation of tortillerias at some stores.
The company is also looking at opportunities to convert additional Bashas' stores to the Food City banner and to build new locations, Manning said.
Bashas' also expects to acquire additional stores that can be converted to the Hispanic format. "There are still so many opportunities to acquire stores that no one wants to operate -- vacant grocery stores that are available. But we also think converting some of our Bashas' stores is our biggest opportunity right now," he said.
At 40% of sales, the 53-store Food City segment is approaching the 45% of sales done by the 64 Bashas' banner stores, Manning said. He said the seven Bashas' Dine stores on the Navajo Nations reservation and three other stores on reservations serving the San Carlos Apache, White Mountain Apache and Tohono O'odham tribes collectively account for 8% of sales, and the seven AJ's account for the other 7%.
Bashas' also operates a single unit called Eddie's Country Store in the resort area of Pine Top in northern Arizona. "We were closing a store in Lakeside, about 15 miles south of there, at about the same time a 12,000-square-foot store became available, and Eddie [Basha] bought it so we could move some of our members [employees] from the closed store to that location," Manning told SN.
Bashas' is the only non-Native American retailer with stores on any of the reservations.
It opened its first store in Chinle, Ariz., on the Navajo Nations reservation, in 1981, "when the tribe put out a letter to all retailers in Arizona asking if anyone was interested in coming onto the reservation," Manning said. "Eddie picked up the phone immediately and told them we were ready."
The Navajos were interested in bringing a supermarket onto the reservation "because they found their people were going off the reservation to shop, and they wanted to promote economic development and bring jobs to the reservation," Manning said.
At least 95% of store employees are Native American, he noted, and Bashas' returns 25% of the stores' net profits to the tribes for education and economic development.
To determine what product mix to offer at the Chinle store, "the Navajos came down and visited one of our stores in Mesa and said they wanted us to duplicate that particular store," Manning said.
The Chinle store, and the six others that followed on the Navajo reservation, were named Bashas' Dine; Dine means "the people" in the Navajo language, Manning pointed out.
He said most of the merchandise in the stores is the same as at any Bashas' location, although certain items sell better, including potatoes, pomegranates, pine nuts, Spam, shortening, baloney, livestock feed and wool yarn. In addition, the stores do a big business in Bluebird flour -- an ingredient for baking fry bread, a Navajo staple; the selection of frozen foods is limited; and the meat cases feature a heavy amount of mutton. The 10 stores serving Native Americans range from 15,000 square feet on the Tohono O'odham reservation to 42,000 square feet. Bashas' just opened the 10th reservation store, in Dilkon, Ariz., on the Navajo reservation -- a store of only 26,000 square feet. "We couldn't build a larger store there, but Eddie felt a store of that size was justified," Manning said.
Bashas' has no plans at this time for additional reservation stores, he added, "though there is still room for growth, and our door is open whenever the Nations' property managers come to us with a chapter that needs grocery services."
Gourmet Specialty Stores
Bashas' got into the upscale retail business in 1994 as part of a seven-store acquisition from Arizona Supermarkets that included the original two AJ's locations, Manning said. "We were interested in AJ's because we felt there was a need to get into that kind of gourmet specialty store as part of our diversity," he told SN.
Bashas' has subsequently opened five more AJ's in upscale sections of Phoenix. The stores feature Prime and Choice beef in The Butcher's Corner; a variety of organic and specialty produce in The Farmer's Corner; baked goods, desserts and cappuccino at The Boulangerie; on-site dining at The Bistro; and expanded floral and gift departments.
The stores average 25,000 square feet. Bashas' has made few changes from the original AJ's concept, Manning said, other than lowering prices on staples such as milk, bread and bananas, "which we price at the same level as we do at all our stores," he explained.
The company has also added wine tasting at two of the stores, "which allows for more one-on-one sales opportunities," Manning said.
Bashas' is bringing a handful of upscale items from AJ's into its conventional stores, he said -- wines, gourmet baked goods and some deli and produce items -- "but at this point, we have been limited in that crossover because we are very disciplined in each brand and format we operate."
Bashas' operates two stores out of state, on its eastern and western borders: one in Crownpoint, N.M., which is one of the Navajo store locations, the other in Needles, Calif., which it acquired in 1989 "at a time we were building and acquiring stores along the Colorado River," Manning said.
Conventional Bashas' stores average 48,000 square feet, with a current prototype of 54,000 square feet that encompasses service delis and bakeries; expanded takeout foods, pharmacies, bakeries and floral departments; new cappuccino bars; plus a Taco Grill at selected stores featuring fresh, made-to-order Mexican foods for dining in or takeout.
"We're getting more into the AJ's style of meal solutions," Manning said, with a deeper selection of takeout foods, including seven featured gourmet entrees each week.
Bashas' will add seven new conventional stores this year and complete two or three remodels.
Until it expanded its distribution center in 1998, the chain was able to accommodate just two or three new stores a year, Manning said.