New Lease on Life

ELLIOT ZWIEBACH

Bristol Farms sees itself as a lifestyle store with a lot of opportunities to expand its volume base, Kevin Davis, chairman, president and chief executive officer of the 14-store chain, told SN.

The 14-store chain is based in Carson, Calif.

“Just as natural and organic food stores appeal to people whose lifestyles make them interested in good health, Bristol Farms is a lifestyle store that appeals to people who want to experience food at its highest level — people who like to cook or buy exotic products from around the world.

“We have a large number of regular customers that shop for specialty items and expensive wines and cheeses — people who tend to have money, who are better educated and who have time to spoil themselves,” he explained. “But we also have customers who come to us when they want to entertain or to buy something for a special occasion or who want something a little fancier — people who know they can find what they want at Bristol Farms.”

The Carson, Calif.-based company got a new lease on life in late October when it became an independent chain again after six years as a wholly owned subsidiary of Albertsons and then Supervalu.

Both Albertsons and Supervalu appeared to offer Bristol Farms opportunities to grow, Davis told SN. But Albertsons' desire to convert some of its unionized stores to the non-union Bristol Farms format ran into problems with the United Food and Commercial Workers Union, and Supervalu encountered unexpected difficulties consolidating its core retail stores, leaving little time or money to invest in Bristol Farms, he explained.

Davis was able to engineer a buyout from Supervalu last October in partnership with Endeavour Capital, a Portland, Ore.-based investment firm, “and as a result of that partnership, there is growth capital to help us going forward,” he said. “We've improved operations in our existing stores to maximize cash flow, and we're using that cash flow to grow, combined with input from Endeavour.”

Bristol Farms' short-term plans include the following, according to Davis:

The 14 stores Bristol Farms operates, including the single unit of Lazy Acres, range from 7,000 to 30,000 square feet, with most in the 14,000- to 30,000-square-foot range. Sales in 2010 were approximately $210 million, with 70% of volume coming from the stores' extensive perishables departments.

Stores carry 25,000 SKUs, Davis said, with a mix that includes 30% standard CPG items, 40% natural and organic products, and 30% specialty, gourmet and imports that are not available on a consistent basis at conventional stores.

Two months into the chain's first quarter, comparable-store sales are positive and running ahead of last year's, Davis said, “and we've already eclipsed the comps of two years ago, before the recession.

“People are buying more and spending more freely than they were.”

While he declined to provide specific numbers, Davis said comps are in the high single digits. “Sales have been going up since last summer, and we're selling more of everything as the higher-end consumer has begun entertaining again and doing more business catering, while also trading up to better cuts of meat, seafood, wine and cheese.”

At the height of the recession two years ago, Bristol Farms' same-store sales dropped 8% to 10%, Davis said.

“Traffic was never down, but we did see customers do some trading down,” he explained. “The biggest drops came in business catering and specialty categories. And people didn't go out for lunch as often, and they cut back on luxuries — until the economy bottomed out.

“Since then our sales have come back faster than they have at conventional markets. The big difference for us was, our customers started boosting their purchases earlier.”

To cope with the effects of the recession, Bristol Farms made a deliberate effort a year ago to reduce its expense structure “and get frugal so we could make it through the recession until the economy came back,” Davis explained.

To do so, it consolidated some corporate positions and was able to reduce overhead by 15%, he said. “Then we reinvested the savings in pricing at the stores because even high-end customers were looking for deals.”

Even though the worst appears to be over, Davis said the chain is continuing to evaluate its offerings. “We're looking at all categories to make sure they are contemporary and current with what customers expect,” he noted.

The company has reset the entire frozen foods category to reflect new products, and it's become more aggressive promoting new and unique items “because products are changing faster than ever, and customers expect change. They're looking for new items for their kids and themselves, not just new sizes or flavors,” Davis explained.

Bristol Farms is also adding more natural and organic products, due to customer demand, and is examining how to expand the vitamin and nutritional supplement sets in some stores with information the chain has learned from operating Lazy Acres.

The chain's first project as an independent operator will be to remodel its store in Rolling Hills — the original Bristol Farms location — “to bring it up to the standards of the rest of the stores,” Davis explained.

He said his preference would have been to expand that store, which is 20,000 square feet, but the company was unable to negotiate an expansion for the site.

All stores have been renovated to some degree over the last five years, Davis noted.

Growth Opportunities

He said he is confident Bristol Farms has plenty of opportunity to grow. “We could double our size in California fairly easily — possibly in Southern California alone.”

The company is also looking for growth opportunities in Northern California, where it operates a single store.

He said he does not see any immediate limits to growth. “Whole Foods operates at a high level with more than 100 stores, so it can be done. You've just got to have the right model to do it.

“For us, it's not about numbers of locations but about doing stores right in each location. In a company of our size, one more store can mean 8% growth.”

For the next couple of years Bristol Farms plans to stick to one or two new stores a year — “very conservative growth until we get some momentum,” Davis said.

The goal will be to open stores to fill in between stores it already operates.

“What we do also depends on the economy and the Baby Boomers. Our store in Palm Desert does a great job catering to retirees, which is an indication of the lifestyle those retirees have — it's more hedonistic. One food writer has called Bristol Farms ‘a Disneyland for adults,’ and we agree that we are a place people can go to spoil themselves.”

The company is open to either building new stores or acquiring existing sites, Davis pointed out.

Most expansion is likely to come in Southern California, he said, though Northern California also offers growth opportunities.

The company has already identified the location for its next store, though Davis declined to say where it is. “We're negotiating right now for two sites — both existing store locations.”

As it seeks new locations, Bristol Farms is less interested in shoppers' income levels than it is in their lifestyles and in population density, Davis explained.

“Because the stores do so much volume in foodservice — with grab-and-go meals, prepared foods, in-store cafes and catering — along with specialty goods, they require a highly dense area, preferably near a university or business center with large numbers of day workers where business entertaining is important.

“We can survive at low volumes, but we need to be in areas with large day populations to support our fresh food offering.”

The ideal size for a Bristol Farms store is 25,000 to 30,000 square feet, he said. A larger store wouldn't work, he noted, “because we don't need the extra space. We're not missing any items, and given that 70% of what we sell is perishables, this size works for us because keeping product fresh and rotated more frequently is easier in a smaller store.”

Beyond stores with the Bristol Farms banner, Davis said he sees growth opportunities for Lazy Acres, a 24,000-square-foot store based in Santa Barbara, Calif., about 100 miles north of Los Angeles.

“When we acquired Lazy Acres in 2005, we saw it as a successful high-end store that was more of a natural and organic version of Bristol Farms, and we wanted to learn from it and synergize those learnings into our operation,” Davis said.

“We also thought we could potentially roll out more Lazy Acres stores to go up against Whole Foods in markets Bristol Farms was not in. And we still feel we can roll some Lazy Acres stores into communities that are not suited to a Bristol Farms but have a big interest in the natural and organic lifestyle those stores represent.”

Lazy Acres attracts a different customer than Bristol Farms does, Davis pointed out. “It's a customer that wants a completely natural and organic shopping experience without conventional products,” he explained.

As a result of its experience with Lazy Acres, Bristol Farms has increased its assortment of natural and organic items, Davis said, “including 40% of the merchandise in the store and 100% of the produce items on the wet rack.

“We've also added some departments from Bristol Farms into Lazy Acres — for example, floral, sushi and upscale wines and spirits, plus a juice bar and an expanded cheese department — and we've increased sales and profitability of that store in the process.

“In fact, Lazy Acres is the No. 1 volume store in the company because customers there buy all the categories Bristol Farms customers buy, plus they buy nutritional supplements and vitamins that Bristol Farms doesn't sell.

“If you took the best Bristol Farms and added vitamins and supplements, it would be the equivalent of adding a pharmacy to a conventional store, which adds a whole dimension we don't have at Bristol Farms.”

Davis said the company is looking at ways it can combine the two formats.

While Lazy Acres is the company's highest-volume store, Davis said the highest-volume Bristol Farms location is the store in Beverly Hills, in the building formerly occupied by Chasen's Restaurant, while the Bristol Farms in San Francisco has the chain's highest customer counts.

Favorable Trends

Davis said he believes industry trends favor Bristol Farms.

“If you look back at the last 15 years, almost all the growth in the industry has been in specialty retailing, whether it's Trader Joe's, Whole Foods or Sprouts. And if you count Costco and Wal-Mart and Target, then all the growth in groceries has come from non-traditional retailers.

“That will continue to accelerate, so the future is bright for Bristol Farms.”

Though Bristol Farms is definitely an upscale chain, Davis said he believes it appeals to a much broader demographic.

“We find we draw from all income levels for different things,” he explained. “Our core customer certainly has above-average income and shops the whole store. But we also have everyone from college kids to lower-income shoppers across all geographies and demographics who come in for sushi or grab-and-go meals or specialty items for entertaining or for the holidays, when they want to trade up.

“A lot of our prepared foods do better with a younger clientele or lower-income people who are looking for quality. But those customers don't do a full household shop with us.”

But Bristol Farms knows where its artisan bread is buttered, and it doesn't pretend it can be all things to all people. “Trying to make our format work for everyone would be a mistake,” he explained.

“Attempting to migrate our mix of goods and services to compete with too many conventional competitors would be a waste of time when what we need to do is stand for something unique and do that well so business will take care of itself.

“If you worry too much about your competitors instead of sticking to what you do well, you can hurt yourself. So we don't worry too much about who has the lowest price on a particular product or how many SKUs or flavors of a product they carry.

“Worrying about those things means we take our eyes off what we do best, which is offering significant quality, service and value.”

Davis said he's fully aware many customers shop at other stores. “Many of our customers do replenishment shopping on bulk items at Costco, Wal-Mart or Target, or else they buy perishables or specialty goods at places like Whole Foods or Trader Joe's if they're not buying them from us.”

However, in terms of competition, “there's not a single format that competes directly with us,” Davis said. “Whole Foods appeals to the nutrition and organic segment, while Gelson's is a high-end conventional grocery store with fewer specialty perishables than we offer. We compete with Trader Joe's and Costco for share of market, but not on an item-for-item basis. We believe we get customer visits from all competitors.”

Bristol Farms' locations primarily overlap Ralphs and Vons, plus Whole Foods and Gelson's on a secondary basis.

“All our shoppers list different primary and secondary stores when we ask where they shop for groceries,” Davis said.

Prepared-Food Expertise

All prepared-food departments are run by Bristol Farms personnel, with none leased out, Davis pointed out.

Accordingly, the chain has developed its own methods to train personnel, including apprenticeship programs that develop people over a period of years, he said.

“For example, in meat, the apprenticeship program trains people first to serve customers at the counter where they learn all the products and how to prepare them,” Davis said.

“Then, after a year or more, they get an opportunity to cut and trim meat and make sausages. They're trained by the department managers as well as by people at the corporate office.”

Bristol Farms has approximately 100 private-label items in its stores, “but there are hundreds, or even thousands, of perishable items with our name on them,” he pointed out. “We make more than 800 items in our central kitchen, so all the soups, salads and baked goods have signs that say, ‘From the kitchens of Bristol Farms’ or ‘Handmade at Bristol Farms.’

“In fact, we saw one study that said we are second only to Trader Joe's in the number of private-brand items we carry.”

In terms of advertising, Bristol Farms runs weekly run-of-press ads and sends out mailers 26 weeks a year, and it also runs radio spots on radio cooking shows.

Davis, 57, oversees marketing, advertising, human relations, finance and real estate for Bristol Farms, while Sam Masterson, executive vice president, is in charge of distribution, warehousing, operations, information technology, security and risk management.

Masterson left Ralphs to join Bristol Farms 15 years ago, just a few months after Davis made the move.

Asked about succession plans, Davis said, “We have 30 graduates of the Food Marketing Management program at the University of Southern California that have grown up with us in the business, and they are the future of this company. “So we have a lot of depth — more than the major chains.”