Northern California is a Safeway market.
The chain's home base is there, in Pleasanton, near its original base in Oakland, and it is the market-share leader in Northern California's two major markets -- the Bay Area that runs along the coast from north of San Francisco down to San Jose and the San Joaquin Valley area that stretches inland from Sacramento south to Stockton and Modesto.
Wal-Mart expects to open its first Northern California supercenter in October in Stockton, which is relatively central to both areas.
The Bay Area is a market Safeway once shared on a close-to-equal footing with Lucky Stores, but by the time Lucky was acquired by Albertsons in 1999, its fortunes had been ebbing, local sources said, and today Safeway has more than a third of the share in the region, while Albertsons has about a fifth, according to data supplied to SN by industry analysts.
"Albertsons says it wants to be No. 1 or No. 2 in every market it's in, but the way it appears to be giving up market share to Safeway in the Bay Area, it wouldn't surprise me to see it leave the market if it continues to slip further behind," a local observer told SN.
Safeway seems intent on boosting its market dominance as it engages in an aggressive expansion program across Northern California, the observer told SN. As consumers seeking more affordable housing move out of the Bay Area and into new developments being built north of the state capital, Safeway is adding "an outrageous number of new stores in those areas," he said.
That could ultimately enable Safeway to overshadow Raley's on its home turf. Sacramento-based Raley's controls about one-third of the market in the greater Sacramento area, compared with less than one-fifth for Safeway. However, in the broader Sacramento-to-Modesto area inland, Safeway and Raley's are about even, with a market share of between 15% and 16%, analysts told SN.
In similar fashion, while Modesto-based Save Mart has a significant share in the Modesto-Stockton area, the chain is tied for third place overall in the San Joaquin marketing area with Albertsons, analysts pointed out.
Observers told SN they believe most of Wal-Mart's best opportunities for supercenter expansion in Northern California will be in Save Mart country in the San Joaquin Valley. "That's where there's the most space available and where Wal-Mart will find the kind of demographics it likes," said one. "There's a lot of land there that's very flat, like the Midwest, and it's very much an untapped frontier."
Before Wal-Mart becomes a factor, however, the chain in Northern California must complete new labor contracts. Negotiations are under way in both areas -- one with UFCW locals representing workers in the interior areas north to the Oregon border, whose contracts have been extended indefinitely since they expired July 17, and one representing workers along the coast, whose contract will expire Sept. 11.
Health care is the main point of contention in Northern California, as it has been elsewhere, one industry source pointed out, "and there's been more usage of health benefits by workers there in the last few months as they've anticipated losing some benefits at the end of negotiations," he added.
Some local observers have speculated that the interior contract is being extended until the Bay Area contract expires so the combined union locals can "add more horsepower" in their dealings with the chains. There's also been speculation UFCW locals in Northern California and Denver could try to coordinate bargaining to achieve greater leverage across the West.
However, at least one observer said the UFCW does not want another California strike after a 141-day strike-lockout in Southern California that lasted from October through March, which produced a lot of enmity among union members with few significant gains.
"The stakes are much higher after Southern California," one observer said. "But if there were a [Northern California] strike, I can't see it lasting more than five or 10 days -- enough time to allow the union to save some face."
Gary Giblen, senior vice president and director of research for C L King Associates, New York, told SN he doubts the chains in Northern California will negotiate contracts that are much different from the one approved in Southern California. "Though the relative strengths of each of the chains is different, the same dynamics operate in both parts of the state," he said.
He said he expects the contracts in the North to be settled "with less heartache" than in the South. "The bloody war has already been fought," he said, "and I don't see the union doing significantly better there."
In contrast to the more spread-out Southern California market, the Northern California area is more a series of smaller markets, separated from each other by hills, bodies of water and other geographic features that produce multiple enclaves that make for more divergent markets, local observers said.
"In San Jose, there's a different climate and different demographics than in San Francisco, though both are part of the Greater Bay Area," one local told SN. "But the people read different newspapers, and the way retailers merchandise to and communicate with customers requires different approaches.
"San Jose and Sacramento are more price-driven markets, so it's harder for companies to make as much money there as they can in the more upscale sections of the East Bay. Both San Jose and Sacramento are good markets for value-driven operators like Raley's and Costco, and they should be good markets for Wal-Mart supercenters."
In contrast, the East Bay -- the market area east of San Francisco Bay running from Richmond south to Fremont and encompassing communities like Berkeley, Walnut Creek and Danville -- is more food-savvy, the observer pointed out.
In San Francisco proper, there are a series of ethnic communities, including Asians and Russians, where ethnic consumers tend to prefer the smaller independent markets operated by people of their own ethnic background, he said. In contrast, most of the Anglo population in the city wants quality and is willing to pay for value-added offerings, which is why Safeway has continued to stay strong there, he said.
Independents have always been stronger in Northern California than in the southern part of the state "because there are some very parochial pockets up there, and good independents that concentrate on merchandising to the local community have been able to thrive -- companies like Andronico's, Draeger's, Molly Stone and Lunardi's. And Whole Foods does particularly well in Northern California -- it may have its best operations in the U.S. up there -- because of the way it caters to the communities it serves."
