On the sidewalk outside Luke’s Local in Cole Valley, a small display of colorful fresh produce sits next to a stack of crates holding bottles of olive oil and jars of tomato sauce. It all looks curated … and costly. 

There are buckets of vibrant, paper-wrapped bouquets and a pile of black handbaskets for shoppers to pick up on their way in. 

Most, however, go without. 

On a blustery weekday afternoon, one shopper wove past the cornucopia of organic oranges and peak-season asparagus, beelining for the refrigerated case, where she grabbed an $8.99 container of pasta salad and a probiotic drink. In one of the store’s four aisles, each jam-packed with local products and artisanal condiments (think: seed oil-free mayonnaise and locally produced Mama Teav’s chile crunch), two men scrutinized the pickle options before heading to the counter with nothing but a loaf of Josey Baker sourdough bread. Behind them, a shopper waited to buy two frozen burritos filled with free-range chicken. All left with their purchases in hand; no bag required.  

Gabrielle Santa-Donato came to the market after a morning panic that she was out of milk for her daily mug of matcha. She was one of the few shoppers to grab a basket. At the counter, she pulled out a bottle of almond milk, one orange, two carrots, and a container of Greek yogurt, all of which cost about $12. 

Luke’s, which plans to open its fourth SF location in May, is her go-to for these minor culinary “emergencies.” But like most shoppers that afternoon, it’s not where she goes to stock up on groceries for the week.

“Oh no,” Santa-Donado said, shaking her head emphatically. “It’s too expensive.” 

Considering the ever-rising cost of groceries, the proliferation of luxe stores like Luke’s Local seems paradoxical. For two years, the biggest local headlines involving the industry have been about high-profile closures, including the city’s largest Whole Foods and the Fillmore district Safeway, the demise of which was so contentious it prompted lawmakers to pass an ordinance making it harder for supermarkets to close. In the meantime, San Francisco’s homegrown specialty markets have been the category that’s actually expanding. 

The apparent dichotomy is reflective of larger industry trends. Increasingly budget-conscious shoppers are turning to big-box stores for their weekly grocery runs, while specialty markets have become the perfect destination for shoppers looking for a little treat. Grab-and-go prepared meals and made-to-order sandwiches mean the specialists function not just as markets but as dining destinations. The result? Traditional grocery stores are feeling the squeeze from two directions. 

Luke’s, which sells rotisserie chickens for $16 and organic Meyer lemons for $6 a pound, is far from the city’s most affordable grocer. In fact, according to a recent analysis by the Chronicle, it’s one of the most expensive. But that hasn’t stopped the company from dramatically expanding over the last five years. The original Cole Valley location, opened nine years ago, was joined by stores in Cow Hollow in 2020 and North Beach in 2023. This spring, the company will open its fourth market, in the Inner Sunset. 

It isn’t the only homegrown mini-chain going through a growth spurt. Bi-Rite, which the Chronicle crowned as the city’s priciest grocer, opened its third and largest location, on Polk Street, in August, more than a decade after adding its second location on Divisidero. In 2022, Gus’s Community Market, which has locations spanning Outer Sunset to Mission Bay, acquired the Canyon Market in Glen Park, bringing its total count to five. As giants like Whole Foods and Safeway exit the city, high-end specialty markets seem to be thriving.   

Luke’s Local founder and CEO Luke Oppenheim has a one-word rationale for his company’s success: sandwiches. 

Before getting into the grocery game, Luke’s was a food kiosk and prepared meal delivery service. Today, in addition to selling produce, meat, and pantry staples, it’s known for $14 made-to-order sandwiches, $13 spicy salmon rolls, and $17 ready-to-heat meals like braised beef with mashed potatoes and celery root. Though he declined to share specifics, Oppenheim said Luke’s stores see “a strong percentage” of sales from prepared deli food, exceeding the average for Whole Foods and Safeway. 

Luke’s stores also tend to have smaller footprints — typically 3,500 to 5,000 square feet — than supermarkets, which average 40,000. The tight quarters mean each store turns over product quickly, reducing waste and maximizing profits, Oppenheim said. 

The small size also forces the company to rigorously review its product mix. Luke’s aims to function like an “everyday grocery store,” which means stocking all the essentials to cook dinner, while also offering higher-quality products than you might find at a supermarket. Sometimes that means allocating precious shelf space to items that aren’t top-sellers — for example, uncommon spices like sumac and caraway seeds. “Do we sell a lot of that? Probably not,” Oppenheim said. “But do we want to have it so that someone can come here and do all the shopping? Yes.” 

Patrick Mills, Bi-Rite’s director of hospitality and operations, similarly points to prepared foods as a driver of the company’s continued success. When Sam Mogannam and his brother Raphael took over the family business in 1997, they leveraged Sam’s experience as a chef and restaurant owner by adding a kitchen and prepared food selection. “We rarely compare ourselves to grocery stores when it comes to prepared food,” Mills said. “The better comparison is a restaurant.” 

Bi-Rite’s approach to sourcing differs even more starkly from that of a traditional grocery store. Rather than looking for more affordable items to fill shelves as inflation pushes up prices, Bi-Rite continues to stock top-of-the-line items, like Lundberg Family Farms organic rice for $11 and Forbidden Fruit Orchards organic blueberries at $10.49 for a 6-ounce box.

As a Certified B Corporation, Bi-Rite sources 60% of its products from local and independent suppliers. That often leads to higher prices for customers, but regulars aren’t struggling with sticker shock, Mills said. “I know there are people that solely shop at Bi-Rite,” he said. “But I think more people use Bi-Rite for something special.” 

The surge of high-end specialty markets isn’t specific to San Francisco. According to economist Pete Zaleski, the grocery industry’s split in two directions has pulled the rug out from under midsize standbys like Safeway and Whole Foods. “On one side, you got the value-seeking customer, and on the other side is what I’d call the ‘new experience’ customer,” said Zaleski, a professor at Villanova University who studies markets, economic strategy, and food prices.

Over the past decade, value seekers have found lower prices and ample selection at big-box stores like Walmart, Target, and Costco and are spending less at traditional supermarkets. It is the “new experience” customers that are fueling the growth of companies like Bi-Rite and Luke’s, feeding the need for rare products and hard-to-find ingredients like $8 curry dosa chips and $11 jars of ground black garlic (it’s aged). In some cases, shoppers fall into both buckets, heading to big-box stores to stock up on basics for the week, then visiting a specialty market to pick up specific items. “There are some products you consider basic food needs, and you just want to get them at the lowest price,” Zaleski said. “And then there are some meals when it’s like, ‘Hey, let’s get something cool and unique.” 

This duality has also created opportunities for the city’s cheaper supermarkets, like Lucky and Grocery Outlet. In 2022, Lucky opened the first full-service grocery store in the Bayview, which was previously considered by the U.S. Department of Agriculture to be  a food desert. This year, Grocery Outlet signed a 15-year lease to open its third store in a 30,000-square-foot North Beach space previously occupied by Safeway. While specialty markets cluster around affluent neighborhoods, including the Marina and Haight-Ashbury, value-driven markets bring food options to areas with a median income of less than $100,000. 

According to John McNellis, a developer who builds and operates Bay Area shopping centers, it won’t be easy to attract more traditional grocery stores to open in San Francisco. That’s due largely to the Neighborhood Grocery Protection Act, a city ordinance approved in October that requires supermarkets larger than 20,000 square feet to give six months’ written notice before closing. 

He believes the additional scrutiny will discourage markets from opening over concern it’d be too difficult to cut bait if the store isn’t profitable. “It’s well intended, but I think it will be counterproductive,” McNellis said. Coupled with the city’s notoriously arcane permitting processes and the relative scarcity of commercial spaces large enough to house a full-size grocery store, San Francisco poses significant challenges for traditional grocery stores. “It’s not that the big guys are endangered, but they’re dinosaurs, and the little guys are the rats who are scurrying around,” McNellis said. 

But on the whole, he isn’t worried about an extinction-level event for the Safeways of the world, even though they may become more of a rarity in San Francisco: “I’m guessing that Safeway and the other guys are pretty much doing just fine.”