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Good News For SoCal: Booming Competition, Legislative Victories And Economic Growth

Delaware Janssen

by Alissa Marchat/staff writer

Aldi has officially moved in, the Hispanic marketplace is thriving and new legislation continues to keep grocery retailers on their toes in Southern California—the “mecca of marketplaces,” as Ron Fong, president and CEO of the California Grocers Association (CGA), called it in a recent conversation with The Shelby Report.

Ron Fong
Ron Fong

The constant flurry of activity that defines the region, home to 60 percent of the state’s population, has proved to be a boon for some and a challenge for others. Ethnic retailers, for one, are finding ways to use shifts in the SoCal marketplace to their advantage.

With a diverse population of more than 22 million people, Fong says it’s no surprise that “every grocery sector” is represented in SoCal.

“Southern California, for instance, has this large population of Hispanic families, so to foster those families, you’ve got very unique Hispanic-format grocery stores in SoCal that are not in other states,” he said, pointing to Northgate Gonzalez, Cardenas Markets, El Super, Superior Grocers and Super A Foods as a few examples of ethnic retailers that are thriving. “They’re independents, but they’re large independents that serve the Hispanic community, and they’re catered for the Hispanic families. (It’s a) very unique marketplace that’s still growing.”

These successful ethnic markets are finding opportunities to expand in the region where other grocers have tried and failed.

“They’re taking advantage of some of the store closures and finding new opportunities from other companies that have not made it,” Fong said. “They take some of those storefronts. And what doesn’t work for a traditional grocer in one region might work for a Hispanic format. I’ve seen that happen time and time again, where new formats go into closed stores and the results are different, for sure.”

Speaking of closed stores, the Haggen failure continues to affect the SoCal marketplace. Those closures created a lot of opportunity for other formats, including Hispanic retailers, to expand at a quicker pace than they likely planned on.

“That’s kind of the oddity of people coming in and out of Southern California,” said Fong. “When you’ve got a big company like Haggen—and Fresh & Easy to a smaller extent—they buy up a lot of properties, and then when they leave, there’s a lot of opportunities open for other people to make it.”

Aldi the latest to try its luck

The latest in big names trying to make it in SoCal is Aldi, which debuted its first eight stores in the region nearly a year ago. The company now operates 34 California stores, ranging from Calexico near the border all the way up to Bakersfield, as well as a distribution center in Moreno Valley.

“They could have picked Northern California (as their starting point), but there’s a certain intoxication to Southern California. Grocers feel that they need to be in the California marketplace, because it’s like that song: If you can make it here, you can make it anywhere,” Fong said. “They want to test themselves.”

Many retailers lose that gamble, but Aldi, which is a member of CGA, “seems to be very organized,” added Fong, noting that the grocer is definitely disrupting the SoCal marketplace.

“Of course, we don’t get involved in competitive issues between our members,” he said. “But I can tell you just from visiting with our members that everybody is watching Aldi. And that very creative format that they’re bringing into the Southern California marketplace…I can pretty much guarantee that all of their competitors have them on their board, watching them and trying to figure out how they can compete in the marketplace.”

With a year under its belt, the grocer still is expanding. The Pasadena Star-News in mid-January reported that Aldi plans to open another location, at 2270 N. Lake Avenue in Altadena, following the recent closure of an adjacent Ralphs. And the company says it continues to “plan for aggressive growth” in the coming year.

Another deep discount format, Save-A-Lot, which came under new ownership in December, will close all its stores in California and Nevada; many of the stores are in Southern California.

Save-A-Lot, which former owner Supervalu sold to an affiliate of Onex Corp. for $1.365 billion in cash in December, said in a statement Jan. 19 that the decision was made “after rigorous review and analysis.”

Thirteen corporate locations, a retailer-owned store and the company’s Rancho Cucamonga distribution center will close. The specific stores and their addresses were not announced.

“All merchandise will be deeply discounted starting Friday (Jan. 20),” the company said. “The stores could close in 2-3 weeks.”

The closures, accounting for less than 1 percent of the Save-A-Lot store network, will “free up resources to allow the company to focus on building out markets where it already has a larger, more established footprint of corporate and licensee stores.

“Decisions like these are never easy, and we understand the tremendous impact they have on our team members and customers. The company is working diligently to ensure that our field associates who will be leaving Save-A-Lot have appropriate severance benefits and outplacement services to assist in their transition.”

Good news on the legislative front

As operators in a state where more than 2,500 pieces of legislation are introduced every year, it comes as no surprise that California retailers are once again finding themselves affected by new regulations. But this time, the new legislation is a win for CGA and its retailers. CGA has been fighting for the recently implemented Proposition 67—which bars retailers from providing shoppers with single-use plastic bags—since 2006.

“Whoever said that legislation is a quick and easy process does not know about the journey of Prop. 67,” Fong said.

CGA initially was not a proponent of a bag ban, but was “dragged into” the debate, as Fong puts it, when more and more localities began implementing their own bans.

“We’re in the business of giving our customers whatever they want. We’re in the customer service business. If they want a plastic bag, we’ll give them plastic. If they want paper, we’ll give them paper. If they want to bring in reusable, let them do that. It’s the consumers’ choice,” he said.

But at the point when more than 150 individual bans had been passed in cities and counties throughout the state, CGA stepped in to lobby for a statewide ban.

“We got dragged into the argument because you’ve got one county that has it, you’ve got the city next door that doesn’t. And when it’s a national company like Safeway, (there’s) massive confusion,” Fong said.

After a drawn-out battle with plastic bag manufacturers, who spent $6.6 million lobbying against the legislation, compared to CGA’s $1.6 million, Prop. 67 made it onto the state ballot. It was voted into law in November and took immediate effect.

The initial period following the vote was a little rocky because “there was really no warm up period for retailers and consumers to kind of get used to the idea,” Fong said.

But after nearly three months without plastic grocery bags, retailers and shoppers seem to have settled into their new normal.

A legislative look ahead

As CGA begins to gear up for the 2017 legislative session, Fong believes Gov. Jerry Brown’s recent State of the State address gives some hope that California’s retailers may get a reprieve from the typical deluge of proposed regulations. Brown’s speech centered around the Trump Administration’s platform on national issues such as immigration, climate change and the Affordable Care Act.

A Democrat, “California’s governor was very strong and emotional about not allowing any of that to happen in California,” Fong said.

Regardless of which side of the aisle the state’s retailers fall on, this could be a positive for the industry, as it likely means there will be little attention given to state issues.

“If (Brown) gets his legislative leader buy-in on his agenda, we think that they’re going to be busy with a lot of these national issues that might start coming west vs. labor bills and all the smaller special-interest groups,” Fong said.

But if and when California’s legislators do turn their attention to the state, CGA plans to have its own proposed legislation ready to go, including a new bill aimed at Prop. 47, which in 2014 reduced the charge for a theft of $950 or less to a misdemeanor.

“It used to be a theft of $950 at a grocery store was a felony. Now it’s only a misdemeanor,” Fong said. “The bad guys know this. They know they can go up to $950 and it’s a misdemeanor. That’s a lot of groceries, it’s a lot of liquor, it’s a lot of cigarettes, whatever.”

This is a particularly big problem for grocers considering that, oftentimes, law enforcement is too busy with other crimes to respond to misdemeanors.

“They’re not even going to come out for a misdemeanor,” Fong said. “And meanwhile, the thieves are getting away with a lot of property that belongs to the grocery store in an industry that has very low margins.”

CGA still is working to write its legislation to combat Prop. 47, but the organization hopes that it soon will be able to address this problem.

CGA also is looking forward to its annual Grocer’s Day at the Capitol, taking place this year on April 18. The event allows 125 CGA members to meet with their representatives to discuss the issues affecting the state’s retailers.

SoCal economy is a bright spot

Adding to the mix of largely positive news coming out of Southern California are the latest reports from the Southern California Association of Governments (SCAG), a metropolitan planning organization. The region has added more than 1 million jobs since the Great Recession bottomed out and is poised to continue its steady recovery in 2017, according to those reports. The economic analyses, released in December at the Seventh Annual Southern California Economic Summit, cover each of the six counties SCAG represents.

“We have come a long way over the past six years, but the opportunities and challenges in front of us remain significant,” said Michele Martinez, a Santa Ana city councilmember and president of SCAG. “As a region, we need to make sure we’re attracting the right kinds of jobs, and are doing all we can to position our workforce to meet the needs of businesses. We also need to make sure we have the infrastructure and services in place to support a growing economy and population.”

The reports paint a generally positive picture of the region over the next several years, with some caveats:

• Los Angeles County has added more than 475,000 jobs since the depths of the recession, and should add another 334,200 by 2020 as it continues on a steady employment growth path. The Institute for Applied Economics at the Los Angeles County Economic Development Corp. projects county employment to grow at an average annual rate of 1.5 percent over the next five years, creating a tighter labor market that should force wages up, particularly in those occupations requiring higher levels of educational attainment. Still, the county and the entire Southern California region face significant headwinds as an increasing number of jobs are being automated, leaving lower-paid occupations as those with the highest number of openings.

• The Inland Empire has created nearly 240,000 jobs since the recession bottomed out and now stands 96,798 above the pre-recession high. Inland Empire economist John Husing said goods movement accounted for 23.3 percent of jobs created from 2011-16, and is likely to create another 11,221 jobs in 2017. Challenges include relatively high poverty levels and education attainment that lags behind the SCAG region as a whole.

• Emerging industry clusters and continued strong investment in Orange County have helped push employment more than 40,400 jobs above its pre-recession peak. Economist Wallace Walrod of the Orange County Business Council noted that venture capital investment has become a major economic driver, particularly in the Irvine area—home to a growing number of high-tech startups. Challenges include a high cost of living, a skills gap in some high-tech fields and automation, which could make relatively low-skill jobs—and even some higher-skill positions—obsolete.

• Significant investment in renewable energy development has helped uplift Imperial County’s economy, which has moved past pre-recession employment levels by 7,000 jobs and seen a resurgence in the middle class. Economist Michael Bracken of Development Management Group Inc. said renewable energy could bring another $6-$8 billion in investment in the county in the next 10-15 years. At the same time, high poverty levels and relative low educational attainment continue to present ongoing economic challenges.

• In Ventura County, anti-growth measures are limiting economic progress and job creation, according to the Center for Economic Research & Forecasting at California State University. Education and healthcare have added 10,600 jobs, while leisure and hospitality have added 5,300.

“Unfortunately, neither sector pays, on average, wages to support a Ventura County lifestyle that includes home ownership,” the report stated.

Alan Wapner, an Ontario City Council member and second VP of SCAG, said the reports underscore a wide range of opportunities and challenges facing the region.

“It’s clear; we must act with a great sense of urgency when it comes to educational attainment and workforce development,” he said. “We need to make sure that we’re not simply replacing good jobs that have sustained our middle class with low-paying positions requiring minimal training and education.”

*Editor’s note: This is part of the Southern California Market Profile, which appears in its entirety in the March 2017 print edition of The Shelby Report of the West.

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