Monday, April 28, 2008

Having Trouble in the Neighborhood (Market)? Who You Going to Call? Gene Hoffman Would Be a Good Start

Despite the rosy scenario about its Fresh & Easy USA grocery retailing venture painted by Tesco PLC CEO Sir Terry Leahy two weeks ago during the company's annual sales and profit report conference call with global stock analysts, we can report the champagne corks aren't popping en masse either at Tesco's global HQ in the UK or at the Fresh & Easy Neighborhood Market corporate offices in Southern California.

Nor is the three month new store opening pause began earlier this month merely a pre-planned event designed for the shear purpose of giving the Fresh & Easy USA team a bit of breathing room after six months of new store-opening frenzy, before they crank-up the new store opening blitz again beginning in July. It's part of the reason but hardly the only one.

Rather, the UK-U.S. across the pond hotline between Tesco PLC CEO Sir Terry Leahy and Fresh & Easy USA CEO Tim Mason is getting lots of regular use these days.

The corporate jet also is generally fueled and ready so as to be able to bring a steady stream of Tesco execs to Fresh & Easy's Southern California U.S. outpost at moments notice in order to discuss what can be done to jump-start the small-format, convenience-oriented Fresh & Easy grocery chain between now and September, 2008, when Sir Terry has promised Tesco PLC will break out Fresh & Easy's sales and profit numbers like the retailer does for its other international retail divisions.

Tesco is far from desperate regarding its Fresh & Easy USA grocery retailing venture in the Western USA as some analysts are suggesting. However, things are far from rosy, and the corporate mood isn't "just fine and dandy" like viewers of the video webcast interview in which CEO Leahy told a public relations interviewer how pleased he and the corporation are with Fresh & Easy's performance to date, might have gathered from viewing the four minute Q&A-style piece a couple weeks ago.

Fresh but not so easy

We can report discussions at Tesco PLC corporate headquarters in the UK are ranging from new marketing initiatives and possibly making format changes to the Fresh & Easy grocery stores, to whether or not there should be some major changes in the senior management team in Southern California.

We've also been told that a topic Fresh & Easy Buzz has been focusing on for months is being regularly discussed both in the UK and at Fresh & Easy's corporate HQ in Southern California. That topic is the "localization" and customization, or lack thereof, of the Fresh & Easy grocery stores to the respective regions, cities and neighborhoods where the stores are located.

To use an analogy, the Fresh & Easy grocery stores are like a residential housing contractor that builds shotgun-style tract homes. Each house is identical regardless if it is in Los Angeles, Phoenix, Arizona or Las Vegas, Nevada. Tract homes have their merits but most Americans long for the day when they can purchase a customized one.

On the other hand, one of the keys to Whole Foods Market, Inc's success in the U.S. is that its more like a builder of custom homes.

Whole Foods' uses a basic blueprint for its supermarkets, but its stores in Austin, Texas, New York City, Phoenix, Arizona and Southern and Northern California for example are all customized on top of that basic blueprint to reflect the unique historical, cultural and demographic aspects and realities of each of those respective regions, communities and neighborhoods its stores are located in.

U.S consumers love this personalization, "localization" and customization in their food stores--just like they do in their houses.

Tract houses are starter homes for Americans. Custom homes are where they want to spend their lives.

And, notice how once most American's buy a tract home, they then customize it as much as possible so that it reflects who they are vis-a-vis their neighbors. "Localization" and customization are in the DNA of American consumers--and shoppers. Just ask Wal-Mart, which more and more is localizing and customizing its stores in the U.S.

Fresh & Easy stores in Los Angeles, Orange County, Metropolitan Las Vegas, Nevada and the Phoenix, Arizona Metro region are basically identical inside and out. They're tract grocery stores if you will.

There's nothing for example in the design elements and product mixes of the Los Angeles and Orange County grocery markets to reflect the unique historic, cultural and demographic differences between those two regions in Southern California. The same is the case with the Phoenix and Las Vegas Metro region stores: they look just like the California Fresh & Easy grocery markets despite the regional differences between the areas.

On the other hand, Whole Foods' stores welcome the local consumer with design elements and local food and grocery product mixes that say..."This is your grocery store," even though we are a national chain.

We aren't saying Fresh & Easy and Whole Foods are equivalent in terms of being competitors. They aren't in that they have different target markets and niches. However, the tract house vs. custom home analogy applies we believe because "localism" is a basic premise of American grocery retailing (and inherent in American consumers) regardless if a retailer is a Whole Foods Market or a Fresh & Easy.

Fresh & Easy recognizes 'localization' but doesn't get it

We can report that in its recent interviews with public relations firms, members of Fresh & Easy's senior management team brought up the issue of localizing or customizing the stores and their product mixes, saying the retailer will eventually be able to customize the product assortment on a store-by-store basis.

It's a positive development in our analysis that Fresh & Easy recognizes the need for this localization and customization, but we don't think the grocer realizes just how important it is. It's a central tenant in U.S. food and grocery retailing--and especially so for a start-up retailer in a region like the Western USA where localization just happens to be one of the top consumer hot buttons in 2008.

We also can report there's been much talk in Tescoland about bringing in executives to the Fresh & Easy operation who have extensive experience in U.S. grocery retailing.

While it's true the retailer recently brought in Jeff Adams--who was born in the U.S., worked for Wal-Mart, Inc. for a bit, and was most-recently Tesco's CEO for it's successful Tesco-Lotus retail division in Thailand--Mr. Adams doesn't have any recent experience in the U.S. grocery retailing industry, especially in the Western USA. Further, we haven't found many U.S. food retailing veterans who can tell us much of what he did while working for Wal-Mart. Perhaps that's because it was some time ago?

Trouble in the neighborhood? Who you going to call?

Were we running Tesco PLC, or responsible for the retailer's Fresh & Easy Neighborhood Market USA operations, one of the first things we would be doing (actually we would have done it some time ago) would be to get on the telephone and introduce ourselves to Gene Hoffman.

Mr. Hoffman is a grey-haired (on the sides at least) veteran of the U.S. food and grocery retailing and wholesaling industry. He's also a unique blend of practical grocery retailer and philosopher-poet. In other words, Mr. Hoffman understands the nuts and bolts of food and grocery retailing in the U.S. but also is a thinker who applies insight from fields as diverse as philosophy and even poetry to the field. Leadership and creativity studies are his friends.

Gene Hoffman currently runs his own consulting firm, Creative Strategies, Inc., as well as LeaderShape, Inc., which is a nonprofit organization he started to develop leadership abilities in young adults aged 17 to 28. Mr. Hoffman also comments often on the website retailwire.

In his current work at Creative Strategies, Inc., Mr. Hoffman applies his decades long leadership in the retail food and grocery industry with his studies of retail trends, creativity and leadership, for clients ranging from supermarket retail chains and grocery products' manufacturing companies to banks and other Fortune 500 corporations.

From 1978 to 1987, Mr. Hoffman was chairman and president of SuperValu, Inc. It was under his leadership that, among other innovations, SuperValu launched it highly-successful small-format Sav-A-Lot discount grocery store chain. During his tenure at SuperValu, the supermarket chain and wholesaler's sales more than tripled and net profits quadrupled, compounding at a rate of 21%.

Before taking the helm at SuperValu, Inc., Gene Hoffman was president of Kroger Co., where he spend 21 years in various positions, working his way up to the top leadership spot at what is today the largest grocery retailing chain in the U.S.

It was under Mr. Hoffman's leadership that Kroger went from being a so-so supermarket company to the leading supermarket chain in America. [Read more about what Hoffman did at Kroger here.]

One of Gene Hoffman's major strengths is his understanding of the gestalt of America's food and grocery industry--from the farm to the grocery shelf--as well as having keen insights into the U.S. consumer. He's also a lifelong learner--it's not just his vast experience that guides him but his reading and dabbling in a wide variety of fields that opens him to innovation and change.

In our analysis, Tesco needs to call a guy like Gene Hoffman. In many ways, Mr. Hoffman is to the U.S. food and grocery industry what Warren Buffett, "The Oracle of Omaha," is to investing. Perhaps a good nickname for Hoffman would be the "The Sage of the Supermarket."

Were we running Tesco, before we made any major wholesale changes at the top--CEO, Directors, ect.--we would get on the phone, gas up the corporate jet, and fly Gene Hoffman to the UK for a meeting. At that meeting we would engage the "Sage of the (U.S.) Supermarket" in a consulting relationship for Fresh & Easy USA--and utilize him completely--including making sure he has a direct line of communication to CEO Sir Terry Leahy.

Mr. Hoffman knows multiple formats. Small-format Sav-A-Lot was created under his leadership, and its not all that different than the Fresh & Easy Neighborhood Market format. He also was instrumental in creating the Super Kmart format, which is similar to Wal-Mart's Supercenter format in combining a supermarket within a huge general merchandise store.

And, those two formats are just for starters in terms of his understanding of the U.S. food and grocery retailing landscape.

Cultural Anthropologists will tell you the best way to understand a culture is to immerse yourself in it. It's called participant observation: One lives with, eats with and adopts the local practices as a way to learn everything he or she can about that respective culture.

As our friends in the UK retail food and grocery industry are fond of reminding us, the UK supermarket industry is a village (their term). We agree. Tesco PLC knows this all to well.

And, we remind them right back, that despite the fact the U.S. is much larger than the UK geographically and population-wise, when it comes to the food and grocery industry, it too is a village. Additionally, no place in the U.S. is that village concept more true than in the Western USA, especially in California.

While we aren't suggesting Gene Hoffman, despite being "The Sage of the Supermarket" in the U.S., is a cure-all for Tesco's Fresh & Easy difficulties, he is the first person we would call right now if we were running a grocery chain and were having "trouble in the neighborhood.

Editor's Note: Fresh & Easy Buzz has no business, economic or personal affiliations with Gene Hoffman or Tesco and it's Fresh & Easy Neighborhood Market USA venture. Regarding Mr. Hoffman, he's just the guy we would call if we were having trouble in the neighborhood (market) similar to Fresh & Easy's.

1 comment:

Anonymous said...

As a brit and former avid customer of Tesco, now living in LA, I was really excited about them coming to SoCal. What a disappointment! Firstly I think the name sounds too much like a certain type of girl from school days.
While I understand it probably wouldn't benefit them to stock the british products I miss like chocolate digestives, I found the stores not only lacking in choice and the bargains that the UK ones have but totally lacking in personality too.
They look unfinished, even the floors have cracks in them!
I agree they should have a more local flavor and definitely need a makeover.
I like the fact that they give me a 25% off coupon every time I shop there but that smacks a little of desperation.
If I was in charge, in addition to more brit products, I would stock more veggie items too and make the stores look less spartan and down market. I hope they fix what's going wrong and survive but I have my doubts.