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San Diego Expansions Are on Grocer’s List

Grocery Outlet Inc. has joined a growing roster of small-format food retailers aiming to reach bargain hunters in San Diego County’s otherwise under-served neighborhoods.

The Berkeley-based company is looking to expand its deep-discount footprint in Southern California, recently opening its third local store in a vacated East Village space on Market Street that formerly housed a drugstore.

Marketing Vice President Melissa Porter said the retailer has signed leases for two more local stores, set to open in 2013 with exact dates to be determined — one on West Point Loma Boulevard in Point Loma, and another on Campo Drive in Spring Valley.

It is in discussions on several other local sites, which it won’t be announcing until it finalizes terms with landlords on lease rates and site improvements.

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“San Diego is a priority market for us,” Porter said. “We’ve recently remodeled our existing stores in National City and Oceanside. Those stores are sort of in the outlying parts of San Diego, and we are now looking at filling in the central part of that market.”

The company, with 165 West Coast stores and another 14 in Pennsylvania, touts an “extreme value” approach geared around manufacturer closeouts and overstocked items. It is a food-focused version of what is done with clothing and other household items at national chains such as Ross Dress For Less, Marshalls and Big Lots.

Most Independently Owned

Most individual locations of Grocery Outlet are independently owned and operated, and employ on average 35 to 50 per store. The privately held company does not release annual sales or other data.

Porter said closeout discounts on packaged food items range on average from 40 percent to 60 percent, with some items priced 70 percent off what they would cost at traditional grocery stores.

Often the reason for the discount is that a manufacturer has changed the packaging on an item, or otherwise made minor revisions to the product and is looking to sell off its inventory of the prior version.

“We have relationships with major national food manufacturers, and a lot of smaller regional makers,” Porter said. “Our product mix at the stores is constantly shifting.”

Like many retailers aiming to expand, Grocery Outlet prefers smaller stores, in the range of 17,000 to 22,000 square feet. Porter said the company in the past has spent up to $1.5 million on renovations to prepare a space for a new store, but generally looks to locate in spots that formerly housed grocery and drug stores to minimize conversion costs.

Grocery Outlet is among several small-format chains, offering various price points, looking to boost their presence in the highly coveted San Diego retail market, where available spaces in the best locations have long been tough to come by.

Those have recently included Trader Joe’s, Fresh & Easy Neighborhood Market and Walmart Neighborhood Market. Locally based Jimbo’s… Naturally recently announced plans for a new store set to open in 2013 at Westfield Horton Plaza in downtown San Diego.

Porter said Grocery Outlet is aiming to serve neighborhoods that otherwise do not have a convenient location of one of the traditional supermarket chains, provided it can find the right mix of leasing rates, tenant improvement costs, demographics and foot traffic.

“The East Village response so far makes us feel very good about our plans for San Diego,” she said.

Scouting for Sites

Ron Pepper, principal and co-founder of San Diego-based brokerage and consulting firm Retail Insite, noted that all kinds of retailers are scouting local sites for new stores. The climate presents a challenge to some deep-discount retailers, such as closeout and dollar stores, since those companies require low overhead expenses for optimum performance of their business models.

Meanwhile, local retail rents have generally been rising over the past two years as the economy has improved and new retail center construction has remained scarce, keeping vacancy rates among the lowest in the nation for major metro markets.

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