By Chris H. Sieroty
Winco Foods LLC, a privately held Boise, Idaho, discount grocer that has expanded its footprint in the two-county region, says its plans to open additional outlets remain on track despite the area’s economic instability.
WinCo plans to open two to three more stores in Southern California by the end of 2010, said Michael Read, WinCo’s vice president of public and legal affairs. They will join three stores the company recently opened in the Western United States, including an outlet in Hemet.
“We describe our company as discount supermarket chain,” Read said in an interview. “We are usually double the size of a traditional supermarket and feature national brands. We focus on pricing and work to be the low price leaders in the (markets) we serve.”
Read, who declined to comment on the future Inland Southern California locations, said Riverside and San Bernardino counties were an attractive market because of demographics. The chain’s business model continues to be centered around individual consumers or families on a budget. Analysts described WinCo’s core consumer as “middle income.”
“We’ve been in the Inland Empire for a several years,” he said. “Our new store in Hemet was a natural process of our overall plans for growth in California.”
Currently, WinCo Foods operates eight Inland Southern California locations, including Hemet, Temecula, Moreno Valley, Fontana, Indio, Apple Valley, Victorville and Pomona.
“We look at the overall market before we decided where to open a new location,” he said. “We look at traffic patterns, demographics, how shoppers spend their food dollars and make sure the store has good visability from the street. Right now our real estate development team is looking for properties throughout the Western United States.”
With sales expected to top $4.5 billion this fiscal year, the company was in a strong financial position to support its expansion goals. Read said WinCo Foods had a strong cash position and a good credit facility to borrow from as needed to finance its expansion.
“Our employees own 84 percent of WinCo Foods, and the rest is owned by a venture capital group, that helped us with our restructuring a few years ago,” he said. The company’s employee ownership structure is known as an Employees Stock Ownership Plan, or ESOP.
In 2004, Endeavour Capital Funds invested $40 million in a recapitalization of WinCo Foods, according information posted on Stoel Rives LLP’s Web site, the Portland, Ore., -based business law firm represented Endeavour Capital in its acquisition of a percentage of the supermarket chain.
Messages left with Stephen Babson, Endeavour’s managing director in Portland, were not returned.
“Endeavour was introduced to WinCo management as a potential equity partner to assist in the buyout of a strategic investor and finance continuing growth in the store network,” the venture capital firm said in a profile posted on its Web site. “In 2004, Endeavour acquired a minority interest in the company alongside the ESOP, which is the majority owner of WinCo. During Endeavour’s involvement, the company has continued its rapid growth, with the addition of two 1 million square foot distribution centers and several new store openings each year.”
While the two-county region has an abundance of supermarket chains, WinCo Foods operates in a different way and is increasing its sales in a recession.
The discount warehouse grocery chain expects to boost its sales by $500 million for the fiscal year ending in late March, Read said. WinCo projects sales of $4.5 billion, up from $4 billion for the last fiscal year and $3.5 billion for fiscal year 2007.
Analysts say overall it’s a difficult economic environment for some chains and the challenge is to be able to attract consumers who are looking to stretch their food dollars.
Bruce Cohen, a retail strategist with San Francisco-based Kurt Solman Associates, said in a telephone interview that the supermarket business has changed dramatically due to the recession, which has forced consumers to change their shopping habits. For instance, from 2006 through late 2008 purchases were driven by convenience as consumers bought more prepared meals, branded items and premium goods, but the recession has caused consumers to look for values and price oriented purchases in an attempt to stretch their shopping dollars.
“Overall, store revenues locally and nationally are being challenged as consumers are making fewer trips to the grocery store,” Cohen said. “It’s expected that consumers will spend 20 percent less on groceries this year.”
Many moderate-income consumers that traded up to purchase goods at Whole Foods, Ralphs or Vons when the region’s economy was booming now shop at Wal-Mart, Costco or WinCo Foods, he said. Cohen said the challenge for WinCo Foods to continue its sales growth was to keep consumers coming back to its stores when the economy turns positive.
“We expect the economy to be very tough in 2010,” he said. “WinCo’s bottom line should continue to benefit from the weak economy and changes in shopping habits. It’s trial and repeat in the supermarket business. Consumers will try WinCo Foods, but business is made in repeat visits.”
On Oct. 19, WinCo opened its eighth Inland location in Hemet. The warehouse-style store is 94,000 square feet and employs approximately 225 individuals, the company said.
As customers enter the store they’ll see a large “Wall of Values” featuring special low pricing on a wide variety of popular items that are placed on heavy metal racks. Read said its bulk-food section is filled with more than 600 items, such as pet food, coffee, flour, and candy.
The store also features “hot price” items in the first two rows. He said the Hemet store is different from other local supermarket chains because of its size and selection.
He said inside store aisles are stocked in traditional patterns, and each store features a bakery, produce department, deli, seafood and meat counter. The warehouse-style chain doesn’t offer loyalty cards and unlike other supermarket chains, the store’s telephone number can’t be found in local telephone books, but is printed on store receipts.
Employees will answer customer questions over the telephone, but will not offer price quotes, he said. The Hemet store is managed by Raul Garcia, a 13-year employee who has worked in several stores before transferring to Hemet from Temecula where he served as store manager, the company said.
Steve Harding, Hemet’s assistant city manager, said local officials didn’t offer WinCo Foods any tax incentives or lobby the company to open its store, but did assist the grocery chain through the building and planning phase, including assistance with the city’s permitting process.
“The store has been packed since it opened,” Harding said. “The store just really took off. The city really had nothing to do with attracting WinCo Foods … supermarkets usually locate in an area that they feel is not being served. However, we are (pleased) about the local jobs the new store has created.”
Located at 4602 W. Florida Ave, WinCo Foods faces local competition from a half dozen other big-box retailers and grocery chains, including Vons, Target, Wal-Mart, Grocery Outlet, Albertsons and State Bros.
Headquartered: Boise, Idaho
Locations: The employee-owned discount supermarket chain operates 29 stores in California, including eight in Riverside and San Bernardino counties.
Rankings: Forbes magazine ranks WinCo Foods as the 114th largest privately held company in the nation.
Web site: http:/// http://www.wincofoods.com
Company Overview: WinCo Foods LLC operates a chain of supermarkets. It offers groceries, meat and produce, bakery, bulk foods, and deli. The company was formerly known as Waremart Food Centers and Cub Foods. WinCo Foods was founded in 1967 and has stores in Washington, California, Idaho, Nevada, Oregon, and Utah. The company has more than 13,000 workers at 70 stores and four distribution centers.
By Chris H. Sieroty