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KEEPING PACE

Baby boomers are gravitating toward the equator.Five of the fastest-growing markets so far in this young century are all in the nation's warmer climes, from Southern California across to central Florida.On the following pages, SN looks at the forces driving population growth in these markets and the efforts of the supermarkets that operate there to grow their share of the sun-baked pie.For the purposes

Baby boomers are gravitating toward the equator.

Five of the fastest-growing markets so far in this young century are all in the nation's warmer climes, from Southern California across to central Florida.

On the following pages, SN looks at the forces driving population growth in these markets and the efforts of the supermarkets that operate there to grow their share of the sun-baked pie.

For the purposes of this article, SN looked only at markets with a population of 1 million or more, and then focused on the five that had the greatest percentage increase in population from 2000 to 2005, according to U.S. Census Bureau estimates.

Those markets are:

1. Las Vegas, up 21.1% to 1.67 million (Page 17).

2. Riverside/San Bernardino, Calif., up 15.3% to 3.75 million (Page 18).

3. Orlando, Fla., up 15.1%, to 1.89 million (Page 18).

4. Phoenix, Ariz., up 14.7%, to 3.73 million (Page 19).

5. Austin, Texas, up 13.2%, to 1.4 million (Page 20).

SN then looked at grocery market-share data covering roughly the same period of time in those markets, to see who kept pace, who gained ground, and who didn't "follow the rooftops," as real estate people describe supermarkets' growth strategy.

Not surprisingly, Wal-Mart Stores, Bentonville, Ark., was a major gainer in nearly every market, and in three of those markets -- Phoenix, Orlando and Las Vegas -- the company has been implementing an aggressive roll-out strategy for its 40,000-square-foot Neighborhood Market format.

In four of the five markets -- every one but Las Vegas -- a regional chain had a strong No. 1 or No. 2 position. Stater Bros. dominates the Inland Empire of Southern California; Publix blankets Orlando; H-E-B is the king of Austin; and Bashas' is a strong No. 2 in Phoenix. Albertsons has the top position in Las Vegas, followed by the other large national chains.

Two things many of the markets have in common are an opportunity for more upscale concepts and a need for more stores to serve the Hispanic population, according to real estate professionals in the markets.

John Crossman, a principal in Trammell Crow Co., Orlando, noted that the four major demographic shifts happening in the country are the aging of the baby boomers, the emergence of generation Y and their active lifestyles, the growth in the Hispanic population, and migration from north to south. "When you look at a map of the country and say, 'What areas appeal to all four of those demographic shifts?' The answer is Southern California, Phoenix, Las Vegas and Florida."

#1 Las Vegas

Gambling mecca has winning hand

LAS VEGAS -- The safest bet in this town over the last five years has been that the population would soar.

Swelled by the ranks of retirees and new job seekers alike, the population of this city has hit an estimated 1.67 million this year, up 21.1% from 2000, according to the U.S. Census Bureau.

The city's rejuvenation as a gambling destination is well-known, but it also has seen some new industries moving to town to help support its growth.

"Clearly, gaming was the largest horse, but they are not the only horse any more," said Lisa Callahan, principal, Sierra Commercial Advisors, based here. "There is a large blue-collar component, but there also is a growing white-collar component and a growing retiree component that has a lot of disposable income."

Although she noted that the cost of housing "has risen dramatically over last two years," it is still more affordable than many other markets in neighboring Southern California and throughout the Southwest.

About 90,000 people per year are moving into the market, she said, many of them from California.

Fueling suburban growth around the outskirts of the city is the ongoing development of a beltway, which is designed to ease commuting to and from the city's downtown and Strip areas. Many supermarkets are developing sites in the areas around the planned beltway in anticipation of housing development, Callahan said.

Unlike many of the other fastest-growing markets in the country, Las Vegas lacks a strong regional independent supermarket operator with a significant share. Instead, the market leader is Albertsons, the Boise, Idaho-based company that is up for sale. The chain has 38% of the market, up from 31% in 2001, according to Metro Market Studies, Tucson, Ariz., and has 44 stores either open or under construction, according to Callahan, whose firm represents Albertsons in the market.

"We have been aggressive in our effort to maintain the leadership position we have today," she said.

Following closely behind are Smith's, a banner owned by Cincinnati-based Kroger Co.; Vons, owned by Safeway, Pleasanton, Calif.; and Wal-Mart Stores, the Bentonville, Ark.-based operator that has supercenters, Sam's Clubs and Neighborhood Markets in Las Vegas. The company is quickly opening Neighborhood Markets in the city after introducing the concept here this year with four stores and with another four on tap for next year, according to a company document about its store-opening plans that was recently made public.

Raley's, the Sacramento, Calif.-based regional operator, pulled out of the market in 2002 with the sale of 18 units to Kroger. Most of those locations have since been converted to the Food 4 Less banner.

Whole Foods Market, the Austin, Texas-based natural food retailer, has one store in the market and is planning a second, according to Perry White, senior associate in the Las Vegas office of Marcus & Millichap, a real estate investment firm based in Encino, Calif.

The company is going into an area called Green Valley near a new, high-end shopping center called The District.

Trader Joe's, the eclectic specialty food operator based in Monrovia, Calif., has three stores in the Las Vegas market and "does very well," White said.

Callahan said she thinks the market could use additional upscale grocery stores.

"There is room for more Hispanic grocery stores, and there is room for more upscale grocers to serve more affluent communities," she said.

White of Marcus & Millichap pointed out that even casino workers tend to have a much higher income than it may appear because of the money they receive in tips, giving spending power that exceeds reported statistics.

Las Vegas Market Share

Stores 2005; Share; Stores 2001; Share

Albertsons 38; 27.8; 31; 23.6

Smith's 27; 19.8; 23; 20.2

Safeway/Vons 24; 12.4; 25; 16.4

Wal-Mart Supercenters 7; 9.3; 5; 5.2

Wal-Mart Neighborhood Markets* 4; 0

Food 4 Less 15; 9.1; 5; 2.8

Costco 3; 6.0; 2; 3.8

Sam's Club 4; 4.1; 4; 2.8

Smart & Final 6; 2.0; 5; 1.3

Raley's 0; 0.0; 19; 11.9

Share Subtotal 90.5; 88.0

Share All others 9.5; 12.0

Share Total Market 100.0; 100.0

* Market share included in that of parent chain

Source: Metro Market Studies

#2 Riverside/San Bernardino

Pushing eastward into the Inland Empire

RIVERSIDE, Calif. -- The vast expanse of the American West is getting smaller by the hour.

In Southern California, one of the few remaining areas with habitable open space is known as the Inland Empire and includes Riverside and San Bernardino counties, where the population has ballooned to an estimated 3.75 million, a 15.3% increase since 2000, according to the U.S. Census Bureau.

"Southern California has always had a region where growth is just extraordinarily rapid," said John Husing, principal, Economics & Politics, based in Redlands, Calif. "It's always been a matter of where is the undeveloped land, and today all that undeveloped land is inland."

He said it is estimated that 52% of all homes that were built and sold in Southern California in the past year have been in Riverside and San Bernardino counties, and the new construction cannot keep up with demand. In the 20-year span from 2000 to 2020, the area is expected to add about 1.6 million new residents, he said. Much of the population growth is coming from people pushing eastward from highly developed areas around Los Angeles.

The industry base is diverse, and includes light manufacturing and a growing presence of high-tech businesses, according to the Riverside Chamber of Commerce here, which is the county seat and one of the largest cities in the region.

Following all the new rooftops are the grocery stores that have long had a presence in the market. Stater Bros., Colton, Calif., is the dominant operator there, with 90 stores and a 35.1% market share, according to Metro Market Studies, Tucson, Ariz. That has increased from 28.9% in 2001. The chain also is building a massive new headquarters and warehouse in San Bernardino, and plans to open 10 stores a year once that additional distribution comes online.

Cincinnati-based Kroger operates both Ralphs and the price-impact Food 4 Less format in the market and captures a 16.6% share, including 9% for Ralphs and 7.6% for Food 4 Less.

Boise, Idaho-based Albertsons and Pleasanton, Calif.-based Safeway -- which operates its Vons chain in the market -- also have a strong presence in the two counties and have been trying to rebuild their market shares since the strike-lockout that ended early last year.

Wal-Mart Stores, Bentonville, Ark., has seven Sam's Clubs in the market but has just begun rolling out its supercenters in the past year. Issaquah, Wash.-based Costco has nine stores in the market and 9.4% market share.

The area has seen a lot of blue-collar housing development, but more white-collar homebuyers are looking at the area, according to Husing, and employers are following them.

Noticeably lacking from the market, however, are chains like Bristol Farms, a banner owned by Albertsons, and Gelson's, which is owned by Arden Group, Los Angeles, both of which have a strong reputation as up-market banners geared to serve consumers like these new, wealthier residents.

"It's a surprise that they are not there yet," Husing said. "Sometimes what happens is that everybody waits for somebody else to make the initial move."

Some Hispanic independents have done well in the market, Husing said, including Ontario, Calif.-based Cardenas.

In recent weeks, another independent, Superior Super Warehouse, based in Santa Fe Springs, Calif., revealed its plans to open five stores in the Inland Empire by next summer.

Riverside-San Bernardino, Calif., Market Share

Stores 2005; Share; Stores 2001; Share

Stater Bros. 90; 35.1; 86; 28.9

Albertsons 45; 13.9; 43; 17.8

Costco 9; 9.4; 8; 8.3

Ralph's 34; 9.0; 32; 11.7

Food 4 Less 25; 7.6; 23; 6.9

Safeway/Vons 32; 8.7; 31; 11.2

Sam's Club 7; 3.6; 6; 2.3

Smart & Final 18; 3.1; 17; 2.4

Wal-Mart Supercenters 2; 1.0; 0; 0.0

Share Sub total 91.4; 89.5

Share All others 8.6; 10.5

Share Total Market 100.0; 100.0

Source: Metro Market Studies

#3 Orlando

Amenities make Orlando a market of choice

ORLANDO, Fla. -- Disney may have put this central Florida city on the map, but the region has become much more than a tourist destination.

The estimated population of about 1.9 million is growing by more than 1,200 per week, according to the Metro Orlando Economic Development Commission, and more than 100 new businesses open each week.

According to Terry Marks, director of retail development, Florida, based in the Orlando office of Weingarten Realtors, the favorable living conditions attract new people to the area.

"I think the value and quality of life here is exceptional," he said. "When people see what kind of housing one can buy for the dollar, and all the new schools and so forth, it offers quite a bit for the money."

He said some of the population growth seems to be coming from southern Florida, where people may be seeking to escape the urban congestion in the Miami area.

Although the retail and service industries are still the major employers in the Orlando market, employment is expanding in an increasingly diverse array of industries, from medical to aeronautics.

"Over years, people have always associated Orlando with Disney and Universal Studios, but it really has expanded over the last decade," Marks said.

The supermarket industry here -- as it is in many Florida markets -- is dominated by Publix Super Markets, headquartered in nearby Lakeland. With a market share of 39.9%, the chain has more than double the presence of its closest competitor, Wal-Mart Stores, Bentonville, Ark., which has been the fastest-growing player in the market, and now garners a 15.6% share, including Sam's Club.

Orlando also has been one of the markets where Wal-Mart has been especially aggressive in its rollout of the Neighborhood Market format, with two opened so far and several more on the drawing board.

"It's like a hub and spokes," said Marks. "They have a supercenter, then they are spoking out with the Neighborhood Markets, usually within two to three miles of the main store."

Other nontraditional food retailers also have done well in the market and continue to expand, including Minneapolis-based Target, which has three supercenters in Orlando, and warehouse-club operators Costco Wholesale, based in Issaquah, Wash., and BJ's Wholesale, based in Natick, Mass.

Weingarten recently secured the second site in the market for Austin, Texas-based Whole Foods Market, which is moving into a high-profile, upscale location in the southwest area of the market, according to Marks. At 50,000 square feet, the new store will be one of the chain's largest in the state, he added.

Although neither Kroger nor Safeway has a presence in the market, Albertsons, the Boise, Idaho-based chain that is seeking to sell itself, has a strong presence in the market and several good locations, according to Marks.

That stands in contrast to Kash n' Karry, the Tampa, Fla.-based operator that recently exited the Orlando market and is converting all of its other locations to Sweetbay Supermarkets. Although Publix picked up a few of the sites, most of the former Kash n' Karry locations continue to remain vacant, Marks said, as they were for the most part poorly located.

John Crossman, principal in Trammell Crow, Orlando, said the exit of Kash n' Karry, the closure of several Winn-Dixie locations and the potential exit of Albertsons haven't really changed the dynamics of the market.

"The impact of all of that has been nothing, really," he said. "Publix and Wal-Mart are still doing what they always do."

He noted that Publix appears to be having some success with its Sabor banner targeting Hispanics, which it opened earlier this year in nearby Kissimmee, indicating that there might be room for more Hispanic-oriented operators in the fast-growing market.

He said there may also be room in Orlando for more upscale supermarkets like Whole Foods.

"High-end retail has done extremely well here," he said, "which means that you can probably have more upscale grocery chains in the market."

Orlando, Fla., Market Share

Stores 2005; Share; Stores 2001; Share

Publix 80; 39.9; 61; 35.0

Winn-Dixie 51; 14; 51; 18.7

Wal-Mart Supercenters 15; 11.1; 9; 7.6

Wal-Mart Neighborhood Markets* 2; 0

Albertsons 25; 10.3; 22; 13.3

Sams 6; 4.5; 4; 2.3

Costco 3; 4.3; 3; 4.6

BJ's 4; 2.9; 0; 0.0

Kash n' Karry 0; 0.0; 14; 4.9

Share Sub total 87; 86.4

Share All others 13; 13.6

Share Total Market 100.0; 100.0

* Market share included in that of parent chain

Source: Metro Market Studies

#4 Phoenix

The heat is on in this evolving resort city

PHOENIX -- When real estate developers talk about Phoenix being hot, they're not referring to the city's famously triple-digit thermometer readings.

"We're adding about 62,000 new homes a year, and the plan is that can probably continue for the next seven or eight years," said Judi Butterworth, senior vice president at retail real estate brokerage firm De Rito Partners here. "Phoenix is basically growing everywhere. The two major cities, Phoenix and Tucson, are basically growing together in the middle of the state."

According to U.S. Census Bureau estimates, the Phoenix market has grown by 14.7% since 2000, reaching a population of about 3.73 million. Over the last 30 years, the population has more than tripled as people have flocked to this market to enjoy its low cost of living and temperate climes -- at least in the spring, fall and winter.

"We don't have earthquakes, we don't have landslides, we don't have locusts -- the only thing we have is heat," Butterworth said. "We're a safe place for people to live and work."

The market is home to the University of Phoenix and two prominent business schools: the William P. Carey School of Business at Arizona State University and Thunderbird -- The Garvin School of International Management, which have helped attract medical and high-tech businesses to the region. Google and Ebay are eyeing call centers in the market, and the Translational Genomics Research Institute here, better known as TGen, is leading a massive cancer research effort that could attract another 40 related companies to the market, Butterworth said.

"Even though we're still a resort community, we're a regular city," she said. "And everything is new. We don't have all that old infrastructure crumbling."

The grocery industry has been dominated by the Fry's chain, which is the local banner of Kroger Co., Cincinnati, in the Phoenix/Mesa market. It has not quite kept pace with the market's growth, however: It has a market share of 27.8%, according to Metro Market Studies, Tucson, a decline from 2001 when Fry's had 34.1% of the market with five fewer stores.

The big gainers have been local independent Bashas' Markets, which operates three different banners in the market and holds the No. 2 position with 15.8% of the market, and Bentonville, Ark.-based Wal-Mart Stores, which has a 12.6% share, including its Neighborhood Market and Sam's Club concepts, up from a 5.6% share four years ago.

Bashas' vaulted into the No. 2 spot through the 2000 acquisition of Southwest Supermarkets, an independent operator focused on serving the region's Hispanic population. Bashas' converted many of those stores to its own Hispanic banner, Food City. Bashas' also operates 11 of its upscale AJ's units in the Phoenix market and is preparing to debut a new natural food format called Ike's Market.

In doing so, it will join a fairly well-developed natural food retail industry that includes regional independents Sprouts and Sunflower Markets as well as Boulder, Colo.-based Wild Oats, which has a pair of stores in the suburbs.

Both Safeway, with 14.9% of the market, and Albertsons, with 11.6%, have been adding stores fairly aggressively to keep pace with the market's growth.

"They are definitely going out into the newer areas," she said. "We're growing so fast, they are going into markets where there's only a customer base of 2,000 people, but they know it's going to fill in."

In addition to Bashas' Food City concept targeting Hispanics, Butterworth said other Hispanic operators like Ranch Markets also are looking to expand in town.

"We've have many of the Hispanic markets from California in here looking," she said, although neighborhoods with the density of Hispanics they are seeking -- about 70% or more -- are not that easy to find, she added.

Phoenix Market Share

Stores 2005; Share; Stores 2001; Share

Fry's 64; 27.8; 59; 34.1

Fry's Marketplace* 17; 17;

Basha's 44; 15.8; 37; 10.3

Basha's Food City* 40; 19

Basha's AJ's* 11; 6

Safeway 61; 14.9; 49; 14.2

Albertsons 45; 11.6; 33; 10.9

Wal-Mart Supercenters 21; 9.4; 83.7

Wal-Mart Neighborhood Markets* 5; 0

Costco 9; 6.9; 8; 6.8

Sam's Club 8; 3.2; 6; 1.9

Trader Joe's 10; 1.1; 7; 1.0

Fleming/ABCO/IGA 0; 0.0; 17; 5.8

Fleming Food 4 Less* 0; 0.0; 3

Fleming/Independents* 0; 0.0; 60

Southwest Supermarkets 0; 0.0; 28; 3.6

Share Sub total 90.7; 92.3

Share All others 9.3; 7.7

Share Total Market 100.0; 100.0

* Market share included in that of parent chain

Source: Metro Market Studies

#5 Austin

Technology industry brings growth to Texas capital

AUSTIN, Texas -- The vibrant college scene that helped give this city a reputation for live music has also helped turn it into a high-tech mecca.

The estimated 1.4 million population in the metro area has grown about 13.2% since 2000, riding a road paved by the success of Dell Corp., the world's leading direct-marketer of computers, which has its headquarters here. According to the Greater Austin Chamber of Commerce, nearly half of the region's top 20 employers are technology companies, including Freescale Semiconductor, IBM and Advanced Micro Devices.

"Austin is not a sleepy little college town any more," said Charlie Northington, principal of retail development for Endeavor Real Estate Group, a developer based here. "For the last 15 years, we've had tech companies coming in from both the East and West coasts. We've got a relatively low cost of living, no unions, and we have the state capital and University of Texas, so there's a lot of research money and those dynamics here."

The population is younger and more affluent than both Texas as a whole and the United States overall, according to the chamber. The Council for Community and Economic Research, Arlington, Va., calculated Austin's cost-of-living index to be 97.1 in the second quarter of this year, ranking it below the U.S. average of 100.

San Antonio-based H.E. Butt Grocery Co. has been able to capitalize on the city's growth by expanding its leading market share to 52.9% of the market, up from 49.8% in 2001, according to Metro Market Studies, Tucson, Ariz. The chain this month opened its first H-E-B Plus store in the market, a 190,000-square-foot supercenter that includes extensive general merchandise offerings.

"Everything about H-E-B Plus is designed to make life easier for time-starved shoppers who want fresh food, quality merchandise and low prices in one convenient destination," said Jeff Thomas, H-E-B senior vice president and general manager for the Central Texas region, in a prepared statement.

H-E-B has long had two of its more upscale Central Market outlets in the Austin market, and now operates another 41 locations of its flagship banner. Other than the new Plus store, however, H-E-B has been relatively quiet in the market for the past 18 months, Northington said.

He also noted that neither Boise, Idaho-based Albertsons nor Randalls, the local banner of Pleasanton, Calif.-based Safeway, have opened many new stores in the past few years. Randalls has 11.7% of the market, down from 13.6% five years ago, according to Metro Market Studies. Randalls is still faring better than Albertsons in the market, which has seen its share halved amid the growth of the major share-grabbers, H-E-B and Wal-Mart Stores, Bentonville, Ark.

Wal-Mart, with 10 supercenters in the Austin market, is nipping at Safeway's heels. Counting its five Sam's Clubs in the market, it already has passed Safeway for the No. 2 spot in grocery market share, although it remains a considerable distance behind H-E-B.

Wal-Mart has two more supercenters under construction in the market, Northington said. Both H-E-B and Wal-Mart are targeting the fast-growing areas on the outskirts of Austin, he noted.

"Neither H-E-B nor Wal-Mart have opened in what I would call an 'old' market," he said. "All of their new stores have been on the periphery of existing markets that are not new but not real mature yet, so there's still room to grow in those areas."

Issaquah, Wash.-based Costco also has entered the market recently, and Whole Foods Market, which is based here, also is growing.

Whole Foods opened an 80,000-square-foot flagship at its new headquarters building here earlier this year, and is expected to incorporate some of the features of that outlet into a store it is planning for its only other location in the Austin market, Northington said.

"The dynamics are here for the high-end operators," he said, noting that upscale department-store banner Neiman Marcus is planning to enter the market soon.

Austin, Texas, Market Share

Stores; Share 2005; Stores Share 2001

H.E. Butt 42; 52.9; 34; 49.8

Randall's/Safeway 16; 11.7; 13; 13.6

Wal-Mart Supercenter 10; 10.6; 5; 7.0

Albertsons 15; 7.3; 14; 14.2

Sam's Club 5; 5.5; 3; 2.9

Costco 1; 2.2; 0; 0.0

Share Sub total 90.2; 87.5

Share All others 9.8; 12.5

Total Market 100.0; 100.0

Source: Metro Market Studies