Friday, April 4, 2008

Fresh & Easy Redux II: One of the 'Biggest' (and Most Interesting) Fresh & Easy Stories Not Being Reported (Except By Us it Appears) in the U.S. Media

Editor's note: On February 11, we reported and wrote the little piece reprinted below titled, "Tesco USA Fresh & Easy Neighborhood Market Outsourcing its IT, Finance, Payroll and Personnel Functions to India Subsidiary.

Fresh & Easy Buzz is the only U.S-based publication we've found that's reported this story about Fresh & Easy outsourcing these major operations functions to Tesco plc.'s Tesco Hindustan Service Center, which we find surprising.

We first learned Fresh & Easy was outsourcing these functions to Tesco Hindustan--which we already knew about because in addition to knowing from multiple sources its right on Tesco's corporate website--from a report in the Indian publication the Business Standard.

The reason this is an important story is that as any business person knows, sales aren't the only element of the balance sheet. There also are costs. And, the costs in the areas of information technology, finance, payroll (even if a payroll service is used) and personnel, are massive for U.S-based supermarket chains.

For example, Kroger and Safeway Stores, Inc. employee hundreds to thousands of people in these departments at their respective corporate headquarters' buildings and in divisional offices across the country.

A mid-level finance manager at a supermarket chain can on average make a "fully-burdened" comphensation package of $100,000 a year. Further, even lower-level finance department workers get a "fully-burdened" package of anywhere from $40,000 -to- $75,000 annually, depending on certain variables like geographical location, experience, education-level and years employed with the company. [For those who haven't been 'fully-burdened' by personnel and hiring issues, "fully-burdened" refers to the total compensation an employee receives, which includes salary, tax and 401-k contributions, health insurance and the like.]

Information technology departmental salaries at supermarket chains are in about the same range as finance. Payroll and personnel department wages and packages are lower, but not by much---and are much higher than what the outsourced workers doing Fresh & Easy's business are making. Additionally, since Fresh & Easy's corporate headquarters is in California, which has about the highest salaries across the board in the U.S., they would be paying top-dollar, like California-headquartered Safeway does, if they weren't outsourcing these jobs to India.

The Tesco Hindusian Service Center/Fresh & Easy Outsourcing story is big additionally because most of the industry analysts, and nearly all of the major business publication reporters, are focusing on just the sales side of the balance sheet regarding Fresh & Easy at present.

[We've focused on the sales side like a lazer-beam here, even offering sales estimates that the stores are only doing about $60,000 -to- $100,000 in per-store, per-week sales, compared to internal Tesco targets of about $200,000 at this point in time. However, in addition to reporting this story about the cost side of the ledger, we've also written numerous pieces that go beyond the sales angle.]

As any grocer knows, if adaquate sales aren't there, low costs certainly can't carry the day alone. But Tesco Fresh & Easy's outsourcing of these vital and expensive operations to it's India services subsidiary is saving the retailer a bundle in labor costs, especially compared to what most of the U.S. competition, which doesn't outsource or does so very little, is paying.

That's a major news story all by itself. Read our February 11, 2008 report below:

Tesco's USA Fresh & Easy Neighborhood Market Outsourcing its IT, Finance, Payroll and Personnel Functions to India Subsidiary

One way Tesco's Fresh & Easy Neighborhood Market retail operation in the U.S. is cutting costs and saving money is by outsourcing virtually all of its information technology (IT) functions, finance, payroll, personnel and other departmental operations to a subsidiary, Tesco Hindustan Service Centre, in Bangalore, India.

"Tesco in India is playing a major role in Tesco in the U.S.," Meena Ganesh, CEO of Tesco Hindustan tells India's Business Standard publication in tomorrow's issue. "There (Fresh & Easy Neighborhood Market in the U.S.) for the first time, Tesco has deployed an operating model which has been planned, installed and supported out of India," Meena says. This model integrates functions such as finance, payroll and personnel, on top of which sits the information technology layer, he told the Business Standard.

Tesco Hindustan also has set up a test lab for point-of-sale and product ordering operations, and eventually plans to handle those functions from India for Tesco Fresh & Easy Neighborhood Market in the U.S., as well as for other Tesco retail operations in Europe and elsewhere around the globe. Tesco is the number-three retailer in the world, with sales of nearly $47 billion a year.

The India outsourcing operation currently has 3,000 employees--1,600 in IT, 500 in finance, and about another 500 working in areas such as, the retailer's online product ordering operation, and store design, Meena told the Business Standard. Tesco CEO Sir Terry Leahy calls the India operations "the heart of Tesco's international operations."

Read the full story, "India arm helps Tesco take on Wal-Mart in the U.S.," to be published in tomorrows's Business Standard.

This outsourcing news isn't likely to make Tesco's Fresh & Easy Neighborhood Market critics in the U.S. too happy. In California and Nevada, the retail clerks union is trying to organize Fresh & Easy store-level workers into its union. Nearly every supermarket chain and most larger independent grocers are union shops in the two states, especially in California.

Additionally, a coalition of neighborhood groups in Southern California is asking Tesco to sign a pledge that the retailer will locate more Fresh & Easy stores in low-income areas, pay its employees higher wages per-hour, give them better health benefits, and follow a number of ethical and environmental guidlines in the communities where the retailer currently has stores and plans on building future stores.

Outsourcing, especially to India, is a hot topic in the Western USA, especially in California where it's become a common practice in places like the high-tech Silicon Valley. It's also a hot topic with the U.S. Congress in Washington D.C. In particular, outsourcing is associated with immigration issues. Also, with unemployment growing rapidly in the U.S. as the country gets closer to a full-blown recession (some say it's already here), the notion of outsourcing jobs is becoming an even hotter issue; and will get even more heated as the unemployment rate continues to rise.

Outsourcing also is a major topic in the American news media. Lou Dobbs, who host a nighlty one-hour news program on cable channel CNN, devotes at least some time on his show every night to the issue of outsourcing. Dobbs is perhaps the most vocal critic of the practice in the U.S. news media, although there are numerous other critics as well.

For grocery chains, especially those with "neighborhood" in their name, the concept of providing local jobs is a key issue among government officials and consumers in the U.S. Finding out Tesco is outsourcing to India what would be its most professional and highest-paying back office jobs in its U.S. operations isn't likely to sit well across the board with these folks either.

For Tesco's Fresh & Easy, the outsourcing of these functions and departments to Tesco-India back office operations, helps explain a bit why the retailer is able to keep its retail prices so low in its 43 Fresh & Easy grocery markets operating in Southern California, Arizona and Nevada.

Supermarket chains like Safeway Stores, Inc. Kroger Co. and others, which maintain these functions at their U.S.-based corporate offices for the most part, pay high wages to the professionals in IT, personnel, finance and the like.

Clearly, based on prevailing U.S. salaries and benefits for these types of positions, Tesco's Fresh & Easy in the U.S. should be realizing some substantial operating cost savings by outsourcing the various back-office functions to its subsidiary in India.

No comments: