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Arizona Enjoying Economic Rebound, Business-Friendly Climate

Delaware Janssen

Last updated on December 15th, 2017 at 08:41 am

by Lorrie Griffith/editor–West

Tim McCabe
Tim McCabe

Arizona has rebounded strong economically over the past year, with its unemployment rate down to 4.5 percent vs. 5 percent the prior year and about 80,000 jobs added. Added fuel for optimism is a more business-friendly climate at both the state and federal government levels, Tim McCabe, president of the Arizona Food Marketing Alliance (AFMA), tells The Shelby Report.

“We’re very optimistic for several reasons,” McCabe said, also citing the comeback of the convenience store industry in Arizona, which is dominated by major operators Circle K (headquartered in Tempe) and Oklahoma-based QuikTrip.

AFMA logoFor the c-store industry, “which struggled through the recession, the volume of sales have really rebounded,” he said. “I think that’s a function of the improved economy. There’s more spending money in the pocket and fuel prices remain low, so it’s very encouraging to see the convenience store industry good and healthy.”

Food retailers in general seem to be doing well, in fact, in the highly competitive Arizona grocery market, he said.

“We’re very much encouraged by the fact that all of food retailers seem to be doing well and are very much poised for the future. We hope that this rebound to the economy continues and it even gets stronger in 2018.”

A new competitor on the horizon?

Aldi, the hard-discount retailer that operates more than 1,600 stores in the U.S. and made its debut in neighboring Southern California in 2016, has plans to open a regional office and distribution center in Goodyear, azcentral.com reported in July 2017. The paper cited an Aldi spokesperson as saying that no store locations had been set at that time. But word on the street now is that the chain has some lease options on Arizona properties, so it seems that it’s “just a matter of time before they start breaking ground and building stores,” McCabe said. “We are expecting that they will be here in the near future with brick-and-mortar stores.”

Aldi, which offers deeply discounted grocery and non-food items that are predominantly private label, will be a new concept for Arizona shoppers. But McCabe believes that, much like the Walmart Supercenters that caused a stir two-plus decades ago, Arizona’s existing grocers will be able to weather whatever storm Aldi brings with it, partly because all of the state’s retailers already offer excellent private label programs themselves, and shoppers can fill only about 80 percent of their overall grocery needs at the limited-assortment format.

“Our retailers do a great job of adapting to what’s changing around them, what’s changing in the stores, what their customers are looking for,” McCabe said. “I think some of our retailers actually know what their customers want even before their customers do.”

Growing, refreshing

Existing retailers also are remodeling and opening new stores in Arizona.

Fry’s, a Kroger banner, has come off a busy schedule of opening new Marketplace stores in Arizona, a total of seven over the last couple of years, representing “the most aggressive new store plan that we’d seen here in Arizona in a long, long time,” McCabe said.

Even though that big push is over, additional new stores are on the horizon, he said, including a downtown Phoenix store that’s in the works that should open in 2019.

“That’s going to be a big boon to downtown Phoenix,” McCabe said, adding that there are 30-plus Fry’s stores that now offer ClickList online grocery ordering and pickup, and that number is expected to continue to climb as that service continues to be one that shoppers increasingly are seeking.

Phoenix-based Sprouts Farmers Market, whose first-ever store was in Chandler, continues to be a popular shopping destination for Arizona residents and continues to grow. While most of the grocer’s growth now is outside of Arizona, in the Midwest and on the East Coast, it does have new stores in Green Valley, Mesa and Tempe planned for the first quarter of 2018, according to its website.

“They have a very good business model,” McCabe says. “They adapt very rapidly to change and their business seems to be very healthy; I think the business results they post indicate that.”

In its third quarter ended Oct. 1, 2017, Sprouts’ net sales were $1.2 billion—a 16 percent increase vs. the same period in 2016. Growth was driven by a 4.6 percent increase in comparable store sales and strong performance in new stores, Sprouts said.

“Sprouts is pleased to report strong top-line growth and demonstrate our ability to leverage those sales into exceptional earnings growth for the quarter. Sprouts’ hallmark of fresh, healthy, affordable products continues to resonate with our customers and positions us as a leader in the industry,” said CEO Amin Maredia in a press release. “We’ll continue to accelerate strategic priorities that will enhance our business—from product assortment to the digital experience to customer service. These, coupled with our technology investments to drive efficiencies, will provide the flexibility to make future investments where needed to ensure Sprouts is well-positioned for the future.”

During the third quarter, Sprouts opened eight stores: one each in Arizona and Florida; two each in California, Nevada and Tennessee. In 2002, Sprouts had one store; today, it has 285 stores in 15 states.

“The amount of growth that they’ve had since then has been significant, especially in the last three or four years,” McCabe said.

Chandler-based hometown grocer Bashas’ is remodeling and remerchandising stores, with an emphasis on making healthier choices prominent features of the stores.

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Bashas’ steadily but methodically moved out of its Chapter 11 bankruptcy filing in July 2009 that was resolved in 2010. The company’s Food City Hispanic format stores and upscale AJ’s stores have remained strong during that time, and now the Bashas’ and Bashas’ Diné Market formats are seeing growth.

“They appear to be very healthy and continue to grow under the leadership of Trey Basha,” McCabe said. “They have definitely turned the corner and are making some good progress. That’s a compliment to the leadership in the organization.”

A change of ownership also has taken place for a group of Arizona stores. The seven Los Altos Ranch Market stores previously were owned by CNG Ranch LLC, an entity made up of California grocery companies Northgate Gonzalez Markets and Cardenas Markets. CNG agreed for Cardenas to buy the Los Altos Ranch Markets, marking Cardenas’ entry into the state of Arizona.

“Acquisitions and new strategic store locations are a key component of our growth strategy,” John Gomez, president and CEO of Cardenas Markets, said in a press release about the deal. “We are fortunate to have identified Los Altos Ranch Market as a partner whose values and mission are aligned with our organization. We welcome the employees of Los Altos Ranch Market into the Cardenas Markets family and look forward to the many opportunities of growth resulting from this partnership.”

The Hispanic-format Los Altos stores (once Pro’s Ranch Markets) emphasize fresh departments such as tortillerias and bakeries.

“You can see everything being made, especially the tortillas. They’re famous for their fresh-made tortillas,” McCabe said. “They provide a very festive atmosphere in the stores.”

He said the change in ownership is likely to appear seamless, as one partner bought out another, and growth in the banner is a likely prospect.

“I’m very optimistic that they’re going to start to grow in their number of stores in Arizona in the future,” he said. “We don’t know what pace or where, but I think they’re poised for growth.”

Business-friendly climate

McCabe and his staff at AFMA are closely watching issues like overtime rules, the farm bill and tax reform, and there is optimism that these issues may be resolved in more business-friendly ways than in the recent past.

“Overall, we see that the impact already of less regulation on business, and that’s very encouraging,” he said. “And there continues to be an excitement level in our businesses here under our governor’s leadership. Gov. (Doug)  Ducey has been a significant, strong proponent of businesses here, and he doesn’t just talk the talk, he walks the walk. We’ve got regulators here in the state that have been appointed that are extremely business friendly. They give us a seat at the table in any decisions that are made; they’re very open to listening into our ideas. Gov. Ducey has put in a culture in the state government that it is very easy for businesses to work with, and we’re very much encouraged by that.

“When you combine that with what’s going on federally right now, we’re very encouraged of how that’s going to help us, whether you’re in a big business or a small business. We think it’s going to be a very positive thing for us economically,” he said.

Arizona may have a budget shortfall coming up, but McCabe is hopeful that “they’ll be able to work that out without any significant impact to to businesses and taxpayers.

“We’re very optimistic and excited, and things continue to get better and better,” he said. “We’re excited what’s going on a national basis and very excited about what has been happening here in Arizona. And hopefully, there are more good things to come.”

*Editor’s note: This is part of the Arizona Market Profile, which appears in the January 2018 print edition of The Shelby Report of the West.

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