Thursday, April 3, 2008

Our 'Fresh & Easy Stores' Lack A Sense of Place' Theory is Growing; Read What We and Others Are Saying Tesco Needs to Do With Fresh & Easy

We just finished reading a piece by Jim Prevor, sent to us from one of our readers. Mr. Prevor is a fresh foods industry consultant and writer who publishes a blog called the Perishable Pundit. He's been, like Fresh & Easy Buzz has, writing frequently about Tesco's small-format, convenience-oriented Fresh & Easy Neighborhood Market grocery store retailing venture in the Western USA.

We were pleased to read the following in Mr. Prevor's April 1 piece: "All these are good ideas [he has a list of seven suggestions for Fresh & Easy above this paragraph]. Our sense, however, is that there is a bigger problem [with the Fresh & Easy stores]. Many of the stores are ill-sited--they lack a sense of place--and it is unclear as to the kind of customer the stores are built for.

Some months ago, we first started writing about our empirical observation that one of the main problems with the Fresh & Easy small-format, combination basic grocery and fresh foods grocery markets, is that the stores lack a sense of place.

We sighted a body of sociological, anthropological and urban planning theory and empirical research called "Sense of Place Theory" as the basis of our assertion that the grocery store format--which has "neighborhood" in its name but not in its stores--lacks a sense of place, thus contributing to the fact people are shopping the grocery markets more like they do a conventional convenience store, rather than a neighborhood grocery store--which is how Tesco has positioned the stores--and how they must be shopped (primary and some secondary shoppers) in order to be successful.

We came upon this finding not only deductively by applying our knowledge and experience with "Sense of Place Theory" to the Fresh & Easy stores when observing and analyzing them in the field, but we also conducted what is called "action research," which is a social and behavioral science field research methodology.

[You can learn more about "action research" by getting the book, "A Practical Guide to Behavioral Research: Tools and Techniques," by Dr. Robert Sommer and his wife Dr. Barbara Sommer. Additionally, you can read a number of Dr. Robert Sommer's papers and articles here. Click here for Bob Sommer's complete list of publications.

Bob Sommer is a professor emeritus at the University of California, Davis, where he has been a Pychology professor--along with a consumer behavior researcher and pioneer--for 45 years. Dr. Sommer also is one of the founders of the field of Environmental Psychology, and was the founder and longtime director of the University's renowned Center for Consumer Research.]

Using the methods of behavior and observational "action research" (which you are now an expert in from reading Dr. Sommer's work linked above), we confirmed our hypothesis that the Fresh & Easy grocery stores are lacking a sense of place based on a number of objective criteria. [Action research is called that because it's not a mere theoretical exercise. Rather, as the term implies, it's a useful scientific research method to use in the real world (like a grocery store), the results of which can be used as data to make changes and improvements.]

Click here to read one of our more comprehensive pieces about the conclusions we reached, (and the suggestions we made in moving forward) about Tesco's Fresh & Easy grocery stores' lacking a sense of place, based on our research.

We're pleased Mr. Prevor independently arrived at the same conclusion we determined through our research, which is that a "big" problem with the Fresh & Easy stores is their serious lack of a sense of place.

[For more knowledge about "Sense of Place Theory" take a look here at what's called "Third Place" as well. Ray Oldenburg is one of the better writers on "Third Place" theory and practice. Coffee chain Starbucks has used "Sense of Place" and "Third Place" theory and practice extensively in it design, operations, marketing and merchandising strategy. Whole Foods Market, Inc. also has used elements of the concepts in its store design and merchadising practices.]

In his April 1 piece, Mr. Prevor also offers Tesco seven suggestions for moving forward with the Fresh & Easy format, operations and merchandising schemes.

His seven suggestions and a number of suggestions we've offered in the last few months are similar. (We've never met or compared notes.) And, he offers some good ideas we haven't mentioned, such as his concept that Tesco needs to stop running the chain like its a multi-thousand store operation rather than the start up it is. We also disagree on some key things of course.

For example, Mr. Prevor even offers a "final solution" of sorts in his piece, which is to break Fresh & Easy into two seperate chains--one a no-frills, discount grocery store format like Aldi, and the other a specialty grocery chain like Trader Joe's, which just happens to be owned by family members who also are the primary owners of German-based Aldi International.

We've thought about the same thing often. In fact, we warned of what we called a "format model muddle" problem with the Fresh & Easy grocery stores long before the the first unit opened. It's a real problem.

Statistitions and economists have a concept called BiModal Distribution. In very basic terms, it's a continuous probability distribution with two different and distinct (the Bi) modes. Up and down are bimodal modes, for example.

This concept has been applied to retailing, the results of which suggest in the case of grocery retailing. formats which have clear differentiation--Whole Foods as upscale, Aldi or Sav-A-Lot as no frills, discount grocers, for example--do the best. It's those in the middle, or without clear format differentiation, that fail the most.

Fresh & Easy does fall into this category in many ways (but not completely), so at some point we might determine that despite some significant format fixes, it might come time to scrap the current format outline altogether.

We aren't there yet. However, if Tesco doesn't make what we are calling significant format tweaks, we do believe the probability of the present format being successful with just marketing and merchandising changes alone is low.

In a nutshell, here are the basic (not all of them) suggestions we've offered to date on improving the Fresh & Easy format, operations, marketing and merchandising processes and practices, based on our field research, interviews with numerous vendors, consumers, store-level workers and others. You can find all of these suggestions in various pieces we've written in Fresh & Easy Buzz:

>Localism: There is a serious need to localize the stores' product mix (and to some degree the actual stores) to the neighborhoods in which they are located. This includes having a solid understand of and respect for the history, culture and demographics of each respective neighborhood a store is located in. From this knowledge flows product mix customization on top of the basic core mix that goes in every store. This customization process is category-wide.

Localism is actually a conceptual suggestion that covers many areas such as marketing, merchandising, format design tweaking and more. It's also a mind-set. It needs to permeate all that Fresh & Easy does in its retailing.

>Create a Sense of Place in the stores; or put the "neighborhood" in Fresh & Easy Neighborhood Market: This is explained a bit above. However, essentially the Fresh & Easy stores are too sterile and uninviting in our analysis to encourage customers to spend much time in them shopping and spending money, which is key to gaining primary shoppers. Doing so is vital for the chain's positioning as a "neighborhood" market, and essential for their financial success. As we mentioned above, there's what we call a "model muddle" within the Fresh & Easy format.

We've offered a number of suggestions for creating a better sense of place in the stores. Among the suggestions include: creating much more inviting bulk produce departments, creating a small, in-store "Fresh & Easy Cafe," in part modeled after Tesco's successful "Tesco Cafe" in the chain's UK stores, and adding design elements and unique features ("localism") to the stores which will reflect a given community and neighborhood's demographics, history and culture. This is done by numerous successful grocery chains. For a good example, note how Whole Foods Market, Inc. localizes it stores while still having an overall core design and merchandising mix. from a conceptualization standpoint, think "mass customization."

>Eliminate most of the packaged produce, with the exception of some specialty items, in favor of abundant, bulk produce displays. This is one of Mr. Prevor's suggestions as well. And of course it should be, he's an experienced produce man. So are we, among other things. And decades of that experience is in the Western USA market.

Americans, especially westerners, love their produce: lots of it and untouched in the main by bags, cellaphane and plastic containers. Sure, Trader Joe's sells produce in packages, and does pretty well with it, the argument will go. However, fresh produce is a mere sideline for Trader Joe's, compared to most supermarkets, large or samll-format.

For a grocer which is positioning its stores as a primary, neighborhood shopping venue like Tesco is with Fresh & Easy, produce can't be a sideline; it must be key. Fresh produce is one of the top-three reasons consumers choose a grocery store. And, at the top of their definition of "good produce" is fresh, bulk and lots of variety. Farmer's Markets have grown in the U.S. by 28% each year for the last 10 years. Does anybody wonder why? Let's see: fresh, abundant, wide variety, bulk, local get the point.

>Store Brand vs. National Brand: We've argued Fresh & Easy needs to change its current store brand vs. national brand product ratio (especially on basic grocery items) from it's current mix of about 65% store brand/35% national brand, to at a minimum 50% store brand/50% national brand mix. Even better, we've suggested, would be a 60% national grocery brand vs. 40% store brand mix.

We don't agree Fresh & Easy should eliminate most all of its store brand grocery items. We think the 60%-40% mix is good. If Tesco digs deep into it's corporate store brand marketing expertise it can do much with that 40%, which also (if marketed well) offers the Fresh & Easy chain a unique product offering to hang it's merchandising hat on. It's called differentiation. Again, it must be executed well. A little history: It took Trader Joe's many years to gain the popularity it has today for its various store brands. TJ's is doing store brand marketing far better than Fresh & Easy is though to date.

>Understanding and Executing a 'Western' USA Product Mix: We've argued the fact that in grocery retailing in the USA their are significant regional differences in brands and consumer product preferences. For example, Kraft Miracle Whip is one of the top two items in the condiment category in most of the Midwestern U.S. However, it ranks far-lower in California, for example.

What about Best Foods mayonnaise? That's what the category's number one selling brand is called west of the Rocky Mountains. East of the Rockies, the exact same product (also number one in the category) is called Hellman's. We've done studies: Western consumers claim Hellman's isn't near as good as Best Foods. They say they wouldn't buy it even if it was 40-50% cheaper. The east of the Rocky Mountain consumers say the same thing about Best Foods vs. Hellman's. There are numerous other, similar examples of the differences we mention.

There even are significant intra-region differences within the Western USA, for example. Even though there are more similarities than differences, the Southern California and Arizona markets have many brand and product preference differences. Even within California, there are many brand and product preference differences between Southern and Northern California.

The Fresh & Easy stores need a product mix review and analysis. This needs to be done by people who have experience in grocery retailing and merchandising in the respective markets: California, Arizona and Nevada. There currently are items in numerous categories--in some cases the number one and number two selling brands/skus--that aren't in the stores. Conversely, there are brands/skus that should be removed because they are poor sellers in the respective markets.

Picking a product assortment for a limited assortment format grocery store is far more difficult--and precise--than doing so for a standard-sized supermarket is. As we've suggested a number of times, Fresh & Easy needs to go back to the drawing board and review and optimize the product mix, across all categories, in the Fresh & Easy grocery markets.

>Fresh & Prepared Foods Out-of-Stock Problem: As we written often, Fresh & Easy continues to have out-of-stock problems in many of its stores in the fresh foods categories, especially fresh, prepared foods. This problem isn't due to massive sales unfortunately. It's a logistics problem. It's improved considerably over the last two months, but still exists.

We argue this is a problem that must be fixed "yesterday," or else it will define the Fresh & Easy stores in consumers' minds as "that store that's always out of what I want." The problem has already created this definition in the minds of numerous consumers we've talked to.

>Dump the Self-Scanning Checkout: American's don't like to scan and bag there own grocery purchases. It's been tried, going back to the 1980's, and has failed. Only a few, niche deep-discount grocers use it today, and its more a novelty than anything else. American consumers also don't buy the proposition that self-scanning leads to lower prices. Wal-Mart, Costco, bare-bones warehouse stores all have clerks who scan and bag customer orders. A chain would have to have really low prices to sell self-scanning to mainstream U.S. consumers; or even non- mainstream ones for that matter. Dump it and dump it fast, as we argued all the way back in December, 2007.

>A General lack of Consumer Awareness of Fresh & Easy Stores: To date, Tesco has relied almost exclusively on publicity generated via the media ("free media") to create awareness for the Fresh & Easy stores. Marketing PR if you will. This hasn't worked. Our analysis is that there's a low-level of consumer awareness (less in Nevada than Southern California and Arizona) in the neighborhoods where the stores are located. Therefore, we've suggested an integrated marketing campaign, using radio advertising as the campaign's "lead media horse." Tesco's "if we build it they will come" strategy hasn't worked thus far.

These six suggestions--and remember "localism" is a more conceptual, multi-purpose suggestion, as well as an attitude that in addition to the specific ideas we offered also must permeate all that the retailer does: format tweaks, operations, marketing, merchandising, customer service--form the basis of the suggestions for moving forward we've offered thus far over the last few months for Tesco's Fresh & Easy Neighborhood Market.

There are numerous points of agreement, and some significant differences as well, which are emerging from a group of grocery industry analysts and participants--who aren't in all cases talking to each other about the issues--about some of the ways Tesco needs to move forward in this now, new store opening "pause" period--and beyond--to help create a more successful outcome for the Fresh & Easy chain.

It's also clear most of these analysts aren't wishing Tesco failure with Fresh & Easy, as Tesco CFO Andrew Higginson suggested might be the case in this piece we ran yesterday.

As part of that "localism" which we humbly suggest should permeate all Tesco does with Fresh & Easy going forward, it might be a worth it to listen to what some of us experienced "locals" are saying. As we used to say in those old "action research" training sessions: 'There's no such thing as too little good data.'

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