small bites

JON SPRINGER

Utilizing a combination of convenience and class, The Fresh Market is out to capture shoppers one or two meals at a time.

The Greensboro, N.C.-based retailer, founded 25 years ago, represents a unique threat to traditional supermarkets, targeting only their wealthiest customers making only the most profitable purchases. It's a formula that has allowed the chain to grow from its Southeast base in recent years, unveiling locations in the Midwest and Mid-Atlantic states over the last year, and now eyeing the Northeast. It currently has 73 stores and plans to grow by 20% annually, officials said. Sales in 2006, on a 65-store base, are estimated to be $651 million, or roughly $500 per square foot.

The company, privately held and family run, did not respond to interview requests for this article.

C-Store Roots

The Fresh Market was founded in Greensboro in 1982 by Ray Berry and his wife Beverly. Ray Berry was a former vice president of the Southland Corp., parent of the 7-Eleven chain, and left that company in 1980 with the notion of opening a store that evoked an open European market.

In a recent television interview, Berry, who today is chairman of The Fresh Market, said he settled on Greensboro at the advice of a stranger. The store, located in a 14,000-square-foot vacant Bi-Rite supermarket site, was funded through his savings. “The small store, with loose produce, vitamins, bulk foods and freshly roasted coffee in bins, stood in stark contrast to conventional grocery stores at the time where foods had increasingly become industrialized and the stores bigger and sterile,” according to the company website.

Partly as a result of utilizing used materials, the store had a rustic, upscale look, complemented by piped-in classical music and low lighting. Service was emphasized, with meats displayed behind glass-front cases, custom cut by an on-site butcher. Fresh-brewed coffee — perhaps a remnant of the chain's convenience store roots — was provided for free.

That original store is still open, though it is scheduled to be relocated to a larger box nearby shortly. Fresh Market stores being built today, though a little larger, retain many of the same elements as the original location.

One thing that has changed over the last 25 years, observers noted, is the public's appetite for the fresh products, upscale presentation and service that has always been The Fresh Market's sweet spot. And that, observers say, is helping to fuel its growth.

“One of the marks of a good company is that when trends go their way, they are there to capitalize on it,” said Scott Van Winkle, an analyst following natural/organic companies for Canaccord Adams, Boston. “They're feeding into the whole trend for fresh and better-for-you, and they've picked up the pace. That's good management.”

Berry's son, Brett Berry, took over several years ago as the president and chief executive officer. A son-in-law, Mike Barry, is the chief financial officer.

Seeking Synergies

“We're not everything to everyone,” James Dewey, real estate manager for The Fresh Market, said at a real estate conference this summer in New Jersey, where the retailer is hunting out new sites. “We rely on, and value, good traditional [supermarket] operators near us, to create some synergies. I can go across the street and trade together with a traditional operator.”

That's not to say traditional supermarket operators will necessarily be enthusiastic neighbors. But as a niche operator, The Fresh Market isn't asking that its customers be loyal only to them. The stores don't stock health and beauty aids, cleaning products or 12-packs of Coke. Its typical shopper uses the store as an alternative to a regular shop, or in addition to shops at warehouse clubs, drug stores or supermarkets, observers said. Its ideal shopper will make several trips a week, shopping for a meal or two at a time.

“We are fine with drug stores [as co-tenants],” Dewey said at the conference. “They work for us. We focus more on convenience, proximity to the neighborhood, and on it being a place where people are comfortable shopping a couple of times per week. For co-tenants, we look for upscale but at the end of the day [we look for] proximity to a strong customer base and sufficient density.”

What's most important as The Fresh Market seeks out sites are demographics. It typically targets upscale neighborhoods with populations of 60,000 in a three-mile radius and 120,000 in a five-mile radius. It seeks household incomes in excess of $75,000 and wants to locate in neighborhoods where at least 40% of the residents in a three-mile radius have a bachelor's degree or higher.

In new markets like the Northeast, finding the right site characteristics is especially important, Dewey said.

“We have a cult-like following in the Southeast where folks know us well and will find us. We can be a little more flexible there in terms of location,” Dewey said at the conference. “That said, we place a huge premium on quality site characteristics, especially in markets like this where we will have to brand ourselves and introduce ourselves to the shopping public.

“Whole Foods can probably make great real estate up here. They've earned that right to go places where other folks might get lost,” he added. “But for us, we'll pay particular attention to the quality of the real estate.”

The type of building matters somewhat less, Dewey added. The company will do new sites, but is often refitting existing sites to its 20,000-square-foot footprint.

“The real estate we're looking for is more targeted, more mature, and that's left us finding second-generation buildings and redevelopments as opposed to what we've done in the Southeast where there are more opportunities. You have to be patient and stay true to the criteria you look for, that's our view,” Dewey said. “It's a multi-year plan, and will come if you're patient.”

In the South, The Fresh Market is busy relocating and expanding its stores. The company recently completed a relocation of its Ponte Vedra Beach, Fla., store, going from 18,000 square feet to 26,000 square feet in a new space down the street. The new store includes a dining area and additional space for organic offerings, reports said.

“The market perceives [The Fresh Market] as a top-tier niche grocer, like a Trader Joe's or a Whole Foods,” Justin Greider, senior financial analyst for The Staubach Co., a real estate services firm based in Orlando, Fla., told SN. “They might not draw as much as Whole Foods but they're not far off. Whole Foods generally will take the better location — the A-plus sites, where The Fresh Market won't want to pay the higher rent to be there. But they want to be where there's a great population nearby.”

Fresh Market opened its first site in Pennsylvania early this year at the Promenade Shops at Saucon Valley, an newly built, open-air lifestyle center near Bethlehem, where its co-anchors include Barnes & Noble, Banana Republic, Brooks Brothers and L.L. Bean.

“We love it because it provides a daily trip,” Bud Moll, senior vice president of anchor leasing for Poag & McEwan, the Promenade Shops' Memphis, Tenn.-based developer and manager, told SN. “Everyday, even if it's a traditional slow day like a Monday or a Tuesday, it provides traffic, because someone is always coming to the grocery store.

“Even if they don't shop other stores on that particular day, it's creating a habit,” Moll added. “But more often they are doing some other shopping as well.”

Moll said The Fresh Market located in the center because it sought the same demographics as many of its co-tenants. Though a new name in a market that includes several Wegmans stores, the store has so far delivered some of the same flair and quality of a Wegmans, but in a smaller, easy to shop format, he said.

“With three Wegmans nearby, any new grocer coming to market is going to have a challenge. But as fabulous as Wegmans is, it's not necessarily a convenient shop,” Moll said. “Here you can go into The Fresh Market, and be in and out in five minutes or a half-hour knowing you'll receive high-quality products in a comfortable, clean environment. People have not stopped going to Wegmans for their weekly groceries, but they now have a convenient stop for high-quality produce, meats and prepared foods.”

Though its stores adapt to a variety of building styles, the interiors of Fresh Market stores tend to share common elements, including classical music and red tile floors. Handwritten sales signs, a fresh floral department and a table serving free coffee greet customers at The Fresh Market's Saucon Valley location. Loose produce is displayed on tables and perimeter shelving, brightly illuminated with spotlights in the otherwise dimly lit room.

'On the Red'

A large rectangular prepared foods bar dominates the center of the store, merchandising prepared foods from sandwiches to sushi to salads and entrees. Meat and fish and deli counters run along the rear perimeter. The deli features private-label Signature deli meats and boasts of more than 200 varieties of cheese.

The store emphasizes service, with employees available to provide advice on cooking and selecting various foods. Managers are encouraged to spend peak hours roaming the red sales floor, according to the company, engaging shoppers and ensuring that employees are delivering great service.

“Having our managers ‘on the red’ has been and always will be a part of our culture and a key reason for our success,” according to a company brochure.

Store designs — which include whimsical displays of antiques on the walls and rustic, weathered wooden crates for the display of produce — are accomplished by an in-house team fiercely protective of its secrets. The Fresh Market sued a would-be competitor, Arthur's Fresh Market, a few years ago claiming the store — then a division of Marsh Supermarkets, Indianapolis — of trademark infringement and copying stores in Greensboro and Naples, Fla., allegedly visited by Marsh executives. Marsh prevailed in court.

As The Fresh Market looks to the Northeast, it too is certain to encounter some formidable small-store, upscale operators.

“I'm respectful of the competition here,” Dewey said at the real estate conference. “There are a lot of wonderful farmers' markets. There's Wegmans, which is a great operator on a large scale. King's has really impressed me and Whole Foods has done some super stores. You also see the Fairways, D'Agostino's, Garden of Eden and Zetuna. But with respect to our competitors, I think we provide something different. I think there's opportunities for us to co-exist.”