Retailers find signs of life in Southern California.

Smith's Food & Drug Centers' expansion into Southern California marks the latest attempt to tap into the region's huge consumer base

One kind of company continues to expand and relocate in Southern California despite the high costs of doing business and other obstacles that draw constant criticism from businesses leaving the state: Retailers

Among the latest to arrive is Smith's Food & Drug Centers Inc., which started construction late last year on a 1 million-square-foot distribution center in Riverside.

The attraction for retailers in Southern California is easy to understand despite the drawbacks often cited by manufacturers and other types of businesses (and by dozens of states recruiting heavily to lure California companies away). With approximately 17 million people living in the six Southern California counties -- and nearly half of them in Los Angeles County -- the region represents a huge consumer market.

Shelley Thomas, a spokesperson for Smith's, said the company's $60 million, 80-acre distribution center will employ approximately 450 workers and include a dry grocery warehouse, a dairy and a warehouse for perishable foods.

Thomas said the dry grocery warehouse is scheduled to open in August, the perishables warehouse in October and the dairy in January 1994.

The distribution center marks a major strategic move for Smith's, a leading regional supermarket chain based in Salt Lake City that develops, owns and operates combination food and drug centers offering a full selection of supermarket items, plus a wide variety of nonfood and drug products and a number of specialty departments.

Lucrative market

The company acknowledges that the Southern California market is competitive but also describes it as "highly lucrative and competitive," but believes it can make inroads into the region because of its innovative retailing methods.

Who's spending to expand
Capital spending as a percentage of annual sales
(Smith's Food & Drug Centers vs. other leading supermarkets)
                              1992         1991       1990
                          (estimated)
Smith's                       12.5%        12.7%       9.1%
A & P                          1.8          1.0        2.4
Albertson's                    3.6          3.1        3.1
American Stores                2.0          1.7        1.5
Bruno's                        3.8          3.6        2.9
Delchamps                      3.3          2.5        2.2
Food Lion                      4.9          4.8        3.7
Hannaford Bros.                4.9          4.0        6.4
Kroger                         1.1          1.0        1.1
Ralphs                         3.5          1.7        3.1
Stop & Shop                    3.2          2.5        1.7
Vons                           3.5          2.9        2.4
Winn-Dixie                     3.4          2.8        2.9
Sources: Smith's corporate reports, Progressive Grocer, A.G.
Edwards estimates

These include products and services not ordinarily found in supermarkets, such as full-service banks, dry cleaners, video shops, take-out Chinese restaurants, photo processing centers, cosmetics boutiques and even local event ticket sales.

A publicly held company traded on the New York Stock Exchange, Smith's has built its reputation for low prices, a wide variety of quality products, and innovative retailing methods.

The company traces its beginnings to 1932, when Lorenzo J. Smith opened a grocery store in Brigham City, Utah. It remains under the control of the Smith family and is one of the country's largest supermarket chains, with 1992 annual sales that exceeded $2.6 billion and 1993 sales estimated to reach nearly $3 billion.

100-store chain

Smith's currently has more than 100 stores in Arizona, Nevada, New Mexico, Texas, Utah, Wyoming and California. It opened its first California store in the Ventura County city of Oxnard in September of 1991. It followed with stores in Lancaster (Los Angeles County) and Fullerton (Orange County) in October, then with locations in Covina (Los Angeles County), Fontana and Rialto (both San Bernardino County) in November. It plans to continue expansion throughout California over the next five years, including stores in at least 10 cities that have been named thus far.

According to a report by A.G. Edwards & Sons Inc., a stock market brokerage and research firm, the Smith's expansion includes plans for opening 15 to 20 stores a year through 1995 for a gain of up to 15 percent in its net square footage. By the late 1990s, the company hopes to have 120 stores in the state, the Edwards report said.

The expansion will include spending about 12.5 percent of its annual revenue, or $275 million, on capital improvements that include the new stores as well as remodeling and the Riverside distribution center.

"More than 75 percent of Smith's current square footage has been newly constructed or totally remodeled in the last five years," the Edwards report noted. The research company said it attached "great importance" to this substantial amount of new square footage because "a fresh and remodeled store base keeps the customer coming back."

Inland Empire

Another research report, by Morgan Stanley, called Smith's "one of the fastest-growing supermarket operators in the industry" and said it should benefit from the opening of the Riverside distribution center, which will be its third. The others are in Layton, Utah and Tolleson, Ariz.

Smith's expansion into Southern California includes a number of stores in the Inland Empire, a growing area that is composed of Riverside and San Bernardino counties, plus the eastern portion of Los Angeles County. Among the area groups most active in recruiting new companies is the Inland Empire Economic Partnership, which was formed last year through the merger of the region's two leading economic development organizations.

Smith's follows a number of large regional and national retailers that have expanded into the region in recent years, among them Swedish furniture retailer IKEA, Wal-Mart, Home Depot, Blockbuster Video and others.

IKEA, for example, opened a 152,000-square-foot center in Fontana employing 200 workers as part of its move into the Southern California market.

Blockbuster, based in Ft. Lauderdale, Fla., accomplished its expansion in part by buying 236 Music Plus and Sound Warehouse stores from Shamrock Holdings, a Los Angeles-based company controlled by the family of Roy E. Disney. Like many other retailers that have flocked to Southern California, Blockbuster operates "super stores" that offer a huge selection and low prices.

Other super stores

Two other super stores, pet food retailer PETsMART and computer retailer CompUSA, have also moved into the region. Both recently signed leases for space at Rancon Corp.'s Phase II Promotional Retail Center at Tri-City Corporate Centre in San Bernardino. PETsMART will occupy 25,000 square feet and CompUSA 23,000, according to Steve Palmer, a vice president of marketing for Rancon.

Palmer said construction was slated to begin in late February at the new center, which will be built next to an existing phase of the Tri-City Promotional Retail Center where Home Depot and Office Club are the lead tenants.

Rancon said the PETsMART and CompUSA leases were further evidence of expansion in the super store segment of retailing. PETsMART, for example, operates 52 super stores in 13 southern and western states and has announced plans for up to 60 more, many in California. CompUSA has 303 stores and has announced plans for 48 more.