Smart & Final Wants to Be the New Whole Foods

L.A.’s oldest grocery store has a new strategy in store

In 1914, when sheepherding and tallow making were still growth industries in Los Angeles, enterprising business partners Jim Smart and Hildane Final set up their wholesale grocery store near the waterfront in San Pedro. Animal feed, patent medicines, and gunpowder were all hot items of the day, and competition in the grocery business was fierce. To reduce overhead, Messrs. Smart and Final invented the “cash-and-carry” concept. Instead of the long-standing methods of pickup or delivery, customers could gather their own groceries and tote them to a register without the assistance of a clerk (that diligent, bespectacled shopkeeper you see in cowboy movies). With its innovative approach and bulk offerings, Smart & Final went on to build a wholesale mini empire in the West by catering to local restaurants, mom-and-pop businesses, and budget-conscious citizens.

Sofa cushion-size hunks of cheese and kegs of laundry detergent may have replaced animal feed and gunpowder, but mega-supermarkets and warehouse clubs are as popular as ever. In 2013, Smart & Final made a tidy $3.2 billion in sales, though the chain is dwarfed by Ralphs (owned by Kroger, a national company that accounts for about 20 percent of the local marketplace, with $98.4 billion that same year) and Costco ($102.8 billion). Unlike other warehouses, Smart & Final requires no membership. Now it wants a bigger bite of the apple—organic ones, to be exact. The company is rolling out fresh produce that’s club cheap but Whole Foods quality. (The specialty market generated $14.2 billion in 2013.) “It’s a unique shopping experience,” says Smart & Final CEO David Hirz of the formula. “No place else will you find the produce department of a farmers’ market, the variety of a club store, the low prices of a mass merchant, and the 1,800 items we carry to support small businesses.” In its ambition to be all things to all people, the company went public in September, raising $160 million to fund Smart & Final’s expansion. The chain has 200 locations in California (which includes its Cash & Carry brand), with 52 more extending as far as Oregon and Mexico. Twenty more stores will be added this year.

The company’s stealth success comes from choosing out-of-the-way neighborhoods that have a large but underserved community. Cheap rent, lower operating costs, and higher sales volume allow the chain to, in the industry argot, maintain everyday low prices. On average this works out to be 12 percent to 16 percent lower than those of its competitors. So why aren’t we all shopping there? It seems the one item Smart & Final doesn’t have is an identity, which is why the company recently hired the marketing exec behind Kohl’s hip rebranding to give its image a makeover. The promise of healthful, affordable food for more Angelenos—that’s a start.