Tuesday, June 3, 2008

Analysis: The 'Cognitive Dissonance' Between Tesco's Fresh & Easy Neighborhood Market Format Strategy and Present Format Reality; Just Ask the Mayor

As Fresh & Easy Buzz has written about in a number of pieces, it's our analysis that Tesco's Fresh & Easy Neighborhood Market format has a serious identity problem among consumers, something the retailer denies publicly.

For example, according to Tesco PLC CEO Sir Terry Leahy, Fresh & Easy Neighborhood Market CEO Tim Mason, and Fresh & Easy marketing director Simon Uwins, the target market for the Fresh & Easy small-format, combination basic grocery and fresh foods markets is "everybody" (all consumers); hence the name "Neighborhood Market."

All three Tesco executives have stated this positioning statement about the format and the stores numerous times in print and verbally to multiple audiences. It's also a major part of the retailer's marketing PR materials.

The Fresh & Easy grocery stores are designed to appeal to all shopper demographics, unlike say Trader Joe's and Whole Foods Market which are more specialty-oriented food stores.

Fresh & Easy's entire strategy is based on this positioning. It's goal is to be the neighborhood grocer, which is why it is employing what we call a "critical mass" retail store strategy, opening stores within about one and a half -to- two miles of each other in the key market areas of Southern California, the Phoenix Metropolitan region, and the Las Vegas, Nevada Metro area. The retailer will be doing the same in Northern California where it will start opening stores early next year.

Fresh & Easy's merchandising strategy also is based on the premise that the stores are for "everybody." That's why the grocery markets offer a limited assortment of store brand and national brand basic grocery items priced at an everyday low price, fresh meats and produce, fresh, prepared foods priced reasonably, and a limited assortment of specialty wines and foods, along with some non-foods.

Tesco's strategy and goal with Fresh & Easy is to be a primary shopping venue, and a limited secondary one, just like Safeway, Albertsons, Basha's, Wal-Mart and other supermarkets. The difference, similar in some ways to Aldi and Sav-A-Lot for example, is the the Fresh & Easy grocery stores are small-format and limited assortment, rather than being a traditional supermarket.

As our analysis has shown we suggest, consumers are confused. Those customers who regularly shop at Fresh & Easy stores "get it" (the format). However, that is rather meaningless since if they didn't "get it" they wouldn't shop at the markets.

Rather, what has meaning (and accounts for lost potential sales) is the fact so many consumers don't "get it." And Tesco needs these shoppers to try the stores if the retailer expects to be successful.

A perfect example of this format confusion, or "muddle" as we call it, happened recently with the City Council in the Southern California city of Rancho Cucamonga, where Tesco is proposing opening a new Fresh & Easy grocery store.

Read the short story below from The Sun, a daily newspaper based in San Bernardino in Southern California's Inland Empire region where Tesco has its Fresh & Easy corporate headquarters and distribution center, an a number of Fresh & Easy stores. We will offer some analysis and comments below the piece from The Sun:

R.C. clears way for specialty market
British concept grocer Fresh & Easy eyeing location near winery building
Wendy Leung, Staff Writer, The Sun, San Bernardino

RANCHO CUCAMONGA - It's not unusual for new businesses to be scrutinized by those not familiar with their concept.

When the Korean-inspired frozen yogurt chain Pinkberry came on the scene, people couldn't help but ask, "Is this really yogurt?"

Now that the British concept grocer Fresh & Easy is eyeing a location in this city, the question that keeps popping up is, "Is this a supermarket?"

The City Council mulled this query Wednesday and decided - no.

Fresh & Easy - a market with a "think small" approach - wants to open a 14,000-square-foot store on the northeast corner of Vineyard Avenue and Foothill Boulevard, behind the historic Thomas Winery building. The property is zoned speciality commercial, and the Planning Commission ruled in March that the grocer didn't fit that designation.

The City Council, perhaps lured by the display of spinach and artichoke chips and Spanish chorizo brought by the store's representatives Wednesday, overturned the Planning Commission decision by a unanimous vote, saying the grocer is indeed different from typical supermarkets.

Mayor Don Kurth said there isn't any doubt in his mind that Fresh & Easy is a specialty store. Addressing the representatives of the property owner, Kurth said, "I think you've got a home run there."

British retailer Tesco began tapping into the U.S. market last fall and has opened two locations in Upland. More stores are on the way for San Dimas, Fontana and another Rancho Cucamonga location at Haven Avenue and Town Center Drive.

Construction for the Thomas Winery Plaza store is expected to begin at the start of 2009. Property owners intend to demolish the two buildings that currently house Antonino's Ristorante, Yatai Sushi Express and other businesses before constructing a new building that would incorporate winery elements.

Existing businesses will relocate within the plaza because there is 15,000 square feet of vacant property, said Jerry Ogburn, a representative of the property owners.

The Thomas Winery building, with Coffee Klatch and Bobby Baja's as tenants, will not be affected. The historic building is billed as the state's oldest winery and is the reason for the specialty commercial designation.

One of the reasons why the Planning Commission was hesitant to give Fresh & Easy the specialty label is the city has no definition for specialty food stores.

But the council members said after several visits to the Upland locations, they were ready to deem it special.

"I couldn't classify it as a supermarket," said Councilman Dennis Michael. "And if I can't classify it as a supermarket, I have to go with a specialty store."

Ogburn said this is probably the first time that the question of whether Fresh & Easy is a supermarket became a sticking point.

Councilwoman Diane Williams agreed that Fresh & Easy was a specialty store but was far from being a fan.

"If the word specialty means unique...individual, then it doesn't necessarily have to be attractive, it can be ugly," she said. "This isn't ugly but it's certainly not the most attractive store I've ever been in. In fact, it's a real turn-off."

Councilman Rex Gutierrez, who applauded the store's commitment to environmentally friendly designs, attributed the grocer's spartan interior to its country of origin.

"I can understand the plainness," he said. "To me, it's typical English practicality."

Fresh & Easy Buzz Analysis:

Which is it: a food store for everybody? Or is it a specialty store. The mayor obviously thinks it's a specialty store; in fact he seems to have "no doubt in his mind" that's just what Fresh & Easy is.

We wonder why the Fresh & Easy Neighborhood Market representatives--the ones who brought the chips and chorizo--didn't correct the mayor and explain to him that Fresh & Easy is a grocery store for "everyone" just like a supermarket is; that in fact that's the retailer's stated positioning for the format and stores?

Well, probably because the reason the city's planning commission turned Tesco down for the new Fresh & Easy market was because they said the store didn't offer enough of a unique quality to be approved. The city has some sort of "we have enough supermarkets in the city already-oriented planning and design guideline."

Since the mayor was obviously bowled over with the "home run" specialty store aspects of Fresh & Easy--not having a doubt it is a specialty foods store--and a majority of the council felt the same way, thereby overturning the planning commission and approving the store, we would expect the Fresh & Easy representatives attending the meeting decided to leave well enough alone in terms of the format confusion, declare victory and go home.

Now it would be just fine if Fresh & Easy wants to be a specialty store; which as the format is it really basically is. But that's not the strategy or the positioning: the stores are designed to be primary (and to a limited degree secondary) food and grocery shopping venues for "everybody."

Hence the problem, or format confusion or muddle, we've been describing for a long time here on Fresh & Easy Buzz.

As we've said, a good part of this problem has been the failure of Tesco to properly communicate what Fresh & Easy is to consumers. The retailer has relied on public relations "free media" marketing to create its message and communicate its positioning. It hasn't worked.

In order to position and communicate a format such as Fresh & Easy in the desired manner, a retailer must use paid advertising it can control along with public relations-oriented marketing. Why? So it can control it's message and say what it wants and needs to, that's why.

We've also reached another conclusion in our analysis: We don't think Fresh & Easy Neighborhood market executives know what the Fresh & Easy format is. They may have at one time; but not anymore.

Here's one hint why: When Fresh & Easy executives were interviewing new public relations firms in Southern California a couple months ago, among the conflicting charges they gave to those firms was to simultaneously position and gain publicity for the stores as leaders in premium wine and specialty foods sales, restaurant-quality prepared foods purveyors, and the cheapest grocery stores in town. That's conflicting.

Of course, as we've argued previously, in many ways the advertising campaign is putting the cart before the horse, as Tesco has much to do to create a format for the Fresh & Easy stores--as well as in it's operations policies--in order for the stores to be grocery markets "everyone" (or nearly everyone) will be interested in shopping in. That's just not currently the case.

Everybody vs specialty: A few examples:

To be a grocery store for "everybody" in the U.S., you have to take checks. Fresh & Easy doesn't take traditional paper checks, just ATM and credit cards.

If you're operating a specialty foods store it's fine not to take checks.

You also need to cash payroll checks, especially in California, Nevada and Arizona, where many Hispanic immigrant consumers (and others of various ethnic groups use their supermarket as their bank, cashing their payroll checks then buying groceries after at that store every two weeks like clockwork. Ask ("everyman") Wal-Mart why it charges a flat fee of $4 to cash payroll checks regardless of their size, and encourages the practice? Ask Safeway Stores why its stores bring cash in by the armored car load on the 1rst and the 15th of every month, which generally is payroll check cashing time for most of these consumers.

Specialty foods stores hardly ever cash payroll checks, which not only is fine, but also wise.

To be a grocery store for "everybody," you can't have self-service checkout (and only assist shoppers with it if they ask).

For example, people over 65 years old, the fastest growing age group in the U.S., don't generally like to scan and bag their own grocery orders. They also don't like to have to ask for help doing so. Some will ask for help. Some will do it on their own--at least once. Many though will do it once and never return to the store. Others will hear about it and never try Fresh & Easy. With this group being the fastest growing age cohort in the U.S.--and the most affluent--that's a lot of "everybody" to exclude.

If you're operating a specialty foods store or deep discount niche market, it's fine to offer self-checkout, after all you're going after a niche market, not everyone.

To be a grocery store for "everybody," you need to carry more than 30-35% of the already limited assortment grocery items in your stores under national and regional brands, along with your own store brand--especially when that store brand has zero brand equity in the market. As we've suggested before, Fresh & Easy's roughly 65% store brand, 35% national and regional grocery brand mix needs at a minimum to be adjusted to a 50-50 mix.

If you're a specialty foods store like Trader Joe's, it's fine to offer 65% or even more of the grocery products under a store brand since you aren't trying to target everyone anyway.

To be a grocery store for "everybody," you need to offer at least half of all your produce items in bulk, rather than having then 100% pre-packaged. And 50% is being generous. It's probably more like 75%.

If you are a specialty foods store like Trader Joe's, its fine to sell all of your fresh produce pre-packaged because like with Trader Joe's, produce is merely a sideline rather than part of a strategy targeting of targeting all consumers. Trader Joe's doesn't care if shoppers purchase most of their produce elsewhere, although they like it when customers buy most of it at their stores.

There's a form of cognitive dissonance going on at Tesco about what Fresh & Easy really is at present and what they want it to be (and their stated strategy for it), in our analysis.

The format, marketing, merchandising and retail operations all scream specialty foods store. But the strategy and investment is one of a grocery store for all consumers: a combination basic grocery and fresh foods store with everyday low prices that is designed to be the primary and to a limited extent secondary food and grocery shopping venue for consumers in the stores' market regions.

There are numerous other examples--and you can find them throughout Fresh & Easy Buzz--of format, merchandising and operational changes which in our analysis Tesco needs to make and evolve in order to make a success of the small-format, convenience-oriented for "everyone" Fresh & Easy grocery stores; unless of course they want to reposition them as specialty foods stores, which the mayor of Rancho Cucamonga would say would be a "home run."


John said...

Although very well written and thought out, I would ague that it is impossible to build a store for "everybody". I would say there are "urban" and "suburban" markets. The former tend to be more like TJ's and the latter more like Kroger and Safeway. F&E is a specialty retailer that could become the mainstream for the "everybody" demographic of tomorrow.

Fresh & Easy Buzz said...

Thanks for offering your opinion and participating.

John, we agree with you that a food/grocery store/chain can be created for "everybody."

In fact, there are many of them out there: Kroger has them, Safeway supermarkets are basically for "everybody," and on and on. It doesn't mean all consumers will shop in them; just that it is the appeal and positioning of such retailers.

Our point is specific to Tesco's Fresh & Easy, in that currently the stores look, "talk" and walk like a specialty foods store, which isn't what they are to Tesco's format design, merchandising philosophy for them, and positioning of the Fresh & Easy grocery stores.

As a result, there is confusion--or that format muddle--among consumers.

The Rancho Cucamonga City Council debate is illustrative of that probel--and there are numerous other examples.

If you read throughout the blog, you will find dozens of pieces in which we offer analysis and make suggestions in terms of how Tesco could begin to cure what we termed its "cognitive dissonace" regarding the format and get closer to achieving the stated goal of being a grocery store for everybody.

The problem with being a specialty retailer in the here and now that "could become the mainstream for the 'everybody' demographic tomorrow," is what do you do in the meantime? Is tomorrow five years, 10 , 25 years...or more?

This isn't a problem if as the operator of Fresh & Easy you say and know you are running a specialty foods store. But that's the point: Tesco is positioning Fresh & Easy as a general grocery store for "everybody," hence the cognitive dissonance between what's there and believed, as well as positioned.

Any other thoughts from readers? Don't be shy. Chime in.