Can a tiny food delivery business take over a beloved neighborhood corner store, beat Whole Foods at its own game, and put it all on your smart phone? A Q&A with Luke Chappell, owner of Luke’s Local in Cole Valley.
According to the Healthy Retail SF program, about 1,000 of San Francisco’s 1,150 food retailers are corner stores. They range from fancy to bare-bones, from tiny to spacious.
One of the newest is Luke’s Local, on the corner of Cole and Parnassus in Cole Valley. It’s where owner Luke Chappell has expanded his prepared-food and grocery delivery business from a warehouse in the Dogpatch into a 3,000 square-foot building that goes back to 1925. For the previous 30 years, the grocery was home to the venerable Alpha Market, run by the Saba brothers Abe and Sam. It is a neighborhood institution.
Between the new store, which opened in December 2016, and the warehouse, Luke’s is approaching 50 employees but hasn’t crossed that threshold. It remains for now unaffected by some of San Francisco’s small-business regulations.
The Frisc recently sat down with Chappell, whose parents founded Tom’s of Maine, to talk about small footprints, being smart about technology, and competition from both big grocers — Whole Foods is just a few blocks away — and online delivery services like Instacart.
What follows is an edited, condensed version of our conversation.
Q: How did you make the connection with Abe and Sam?
A: I had lived in the neighborhood for about four years. I didn’t know Abe well, not as closely as many neighbors. I was coming off the street saying, “I’m not sure you want to sell, but I’m interested in taking it over.” It was not about saying I could do better, I have tremendous respect for what he had done for 30 years and the heritage here. But I was seeing if there was an opportunity, if they wanted to retire.
I’d been looking to expand into retail for 10 to 12 months. It hit a point where I was questioning whether I’d ever find the right space. This neighborhood was definitely a dream. We were looking at others, but this one in particular is extremely supportive of local merchants. I said, ”Let’s see what happens,” and talked to Sam that day. He said they were interested. We went in the back, sat on milk crates, and started talking.
Q: Describe the business before this expansion.
We’ve built this organically as grocery delivery over five and half years, heavily focused on prepared foods. We have a few chefs in our kitchen in Dogpatch. We’re producing the food, sourcing it from local farms, and getting it to the customer’s doorstep.
Then the idea was capturing that CSA [community-supported agriculture] box and produce mix, then bread from a local baker, then Blue Bottle coffee. … We started to piece together other groceries with our prepared foods, getting to a point where we said, “OK, we’re grocery delivery. This isn’t just prepared foods.”
People love grocery shopping. It’s a connection you want to make, but you don’t have the time. For us, it would be a combination of both: Shop our store, a neighborhood market, but when you don’t have time you can get delivery around a certain radius.
Q: Did you study other neighborhood markets, the Bi-Rites of the world, to figure out how they do it?
BI-Rite is a prime example of doing a lot with a small footprint. That’s what I wanted to take away from their model: Be an everyday grocery store in 3,000 square feet. We have similar vendors and sourcing practices already. We incorporated that into our business model from day one. We developed a lot of great relationships over the years that we’re excited to showcase in this store. You don’t need 35,000 square feet to be a grocery store if you’re treating it more like a daily experience. We have people coming into the store two or three times a day.
Our №1 goal is servicing the neighborhood. We’re still trying to fill the store with what they want, figuring out what we’re missing. There’s a lot more variety I want to fill in. When we’re closer to what I want this to be, you’ll be able to get everything you want out of the butcher case, out of packaged meals and prepared goods. Then you’ll shop the rest of the store like a grocery store: toilet paper on sale, or an endcap with a bunch of seltzer, taking the bodega to a different level. I want everyone shopping here and no one at Whole Foods in the neighborhood. I don’t want to be an in-a-pinch store, or just known for prepared meals. I want all the groceries they need.
Q: Any surprising requests so far, or things you want to include that might be tricky?
Bulk is one thing. To do it right, you need a lot of products to pick from. We have to pack it in, but there’s more space in the store than I first realized, along the back wall. With bulk, you can have affordable prices because you don’t need a lot of packaging.
I want to make sure we have the little stuff, everything you’d need, even odd items, to cook a recipe. Someone came in yesterday for a specific type of brewer’s yeast and we didn’t have it. But why can’t we? It’s shelf-stable. Following food trends helps us understand what will be in those recipes.
Q: With data systems, big grocers know exactly what people are buying at their stores, and can tap into general trends everywhere else. Can a small grocer like you take advantage of that technology?
There are still plenty of grocery stores out there tallying inventory and placing orders manually. We’re at the point we can order off of data. That’s a big step, and it didn’t come in first few months.
Technology is definitely changing the grocery space. For me, it’s technology to make our business model work for the demand. What kind of information can I capture in the business we’re running? The next step would be service you can rely on for delivery within a few hours, ordering off your phone. [Editor’s note: As of October 4, Luke’s was testing a smartphone app but it wasn’t ready for public use.] Compared with other smaller footprint markets, that will become more our identity: Embracing technology and doing what we can to provide great customer service through the flexibility of delivery or coming in in person.
Someone came in yesterday for a specific type of brewer’s yeast and we didn’t have it. But why can’t we?
Q: Do food-delivery services like Instacart hurt or help a neighborhood grocer?
They help, because all these delivery services are creating more demand. It’s no longer seen as something for the older generation that can’t physically get down to a store. Plenty of startups are taking a spin at what they think it can be, but no one has solved it.
Q: A recent story about Peapod grocery delivery in New York showed how complicated it is. The bananas can’t get too close to other fruit, the cold stuff needs to stay cold, and so on.
That’s also everything coming from one warehouse and sitting on a truck the entire day. Our model is more localized. Using the [Cole Valley store] as fulfillment center — a 1.5-mile radius is where we start. Anyone out of that zone will still get the next-day service we have now from our Dogpatch warehouse, where all the prepared food is produced.
Q: Were any local regulations tougher to deal with than expected?
Nothing too outrageous. We were aware, being in business already, so it didn’t change when we opened the store. The tables and chairs took longer to get on our sidewalk. Getting a permit was a long process and we didn’t start it early enough.
We’d like to do wine tasting, but it requires an additional license. San Francisco has a lot of additional expenses that other cities don’t. As long as we get support from the neighborhood, it’s all possible. But if you drive to Target and stock up or do other things to circumvent your local grocery store, it makes it harder.