Monday, July 14, 2008

Breaking News & Analysis: CA Assemblyman Introduces 'Tesco Fresh & Easy Law' to Ban Stores With Self-Checkout-Only From Selling Alcoholic Beverages

California State Assemblyman Hector De La Torre, a Democrat who represents South Gate in Southern California, has introduced legislation that if passed would ban the sale of alcoholic beverages at stores in California that offer only self-checkout lanes.

Tesco's Fresh & Easy Neighborhood Market is the only food, grocery or convenience retailing chain (or even significant independent we can find) thats stores offer only self-checkout. As a result, it's fair to call the Assemblyman's proposed self-checkout only stores alcohol sales ban the "Tesco Fresh & Easy law."

The bill, AB 523, would if passed only affect Tesco's Fresh & Easy therefore, since we've been unable to find any significant-sized food and grocery retailer in the state that offers only self-checkout in its stores.

All of the current 62 Fresh & Easy stores in California, Nevada and Arizona (more than half of the 62 stores are in Southern California )sell beer and wine. Further, Tesco's Fresh & Easy has numerous varieties of its own proprietary-blended wines which it sells in its stores. Wine sales are a significant element of Fresh & Easy's merchandising strategy, as it is attempting to position the small-format grocery stores in part as destination retail outlets where shoppers can buy high quality wines at affordable prices as part of the grocery markets' overall mix.

California's Alcohol Beverage Control Department (ABC) told Fresh & Easy Buzz today that it has yet to request a copy of the proposed legislation from Assemblyman De La Torre's office. A department spokesperson added the legislation isn't something the department, which is in charge of regulating alcohol beverage licensing and sales in the Golden State, is seeking.

AB 523, the legislation to ban stores only offering self-checkout from selling alcoholic beverages, is sponsored by the Marin Institute, a San Rafael-based alcohol industry watchdog group. Assemblyman De La Torre, who is carrying the legislation for the group, introduced the bill on June 23 in the State Assembly.

Under current California law, self checkout grocery lanes are designed to freeze up whenever a shopper self-scans an alcoholic beverage item or pack. A store clerk then has to come to the checkout stand and check the customer's identification card to make sure he or she is over age 21.

However, Michael Scippa, who is the advocacy director for the Marin Institute, the sponsor of the legislation, says self-checkout lanes make it easier for minors to buy alcohol, as well as make it easier for adults already intoxicated to more easily purchase alcoholic beverages (which is illegal for them to do in California) because he says evidence suggests it's difficult when a store is busy for store clerks to monitor multiple self-service checkout lanes at the same time.

"It's just not going to be possible for one person to monitor five or six checkout lines without someone slipping by," Scippa said. "I think it's a prescription for increasing underage consumption, a recipe for more binge drinking," Mr. Scippa said in a statement.

An analysis of the bill by the Senate Governmental Organization Committee however says "ABC staff indicates that they have no evidence of any problems associated with minors purchasing alcoholic beverages through self-service checkouts."

Chris Albrecht, legislative officer with ABC, says the ABC ran a field operation in the Long Beach area in Southern California earlier this year in which it had several teenaged volunteers attempt to buy alcohol at self-service lines. In each case, Albrecht said, the systems worked as designed and prevented the sale. These stores included Southern California Fresh & Easy grocery markets.

"We have not seen evidence of a systematic problem in the industry with allowing consumers to conduct part of those transactions on their own," Albrecht said. "We've gotten no complaints about their (self-checkouts only) use leading to sales to minors," Albrecht says in the report.

If passed, AB 523 would require Tesco's Fresh & Easy to change from having all of the checkout lanes in its stores to having a least one full-service checkout lane dedicated in each store, which shoppers buying alcoholic beverages would have to use. This is mandated in the proposed legislation for any and all retailers using a 100% self-service checkout model in their respective stores.

Retailers that offer both self-service and full-service checkout lanes would merely have to put a sign on the self-service lanes in the stores, stating that if a customer is buying alcoholic beverages they are required to use the full-service checkout lanes.

The legislation, which was just introduced on June 23, is working its way through the appropriate committee system route in the California State Assembly. IT has to pass various committees in the State Assembly, then do the same in the State Senate, and then be signed by the Governor in order to become law. The bill, like all others, can be amended all along that route.

UFCW union to support AB 523

Fresh & Easy Buzz has learned the UFCW union will likely come out in full support AB 523, the self-checkout only alcohol sales ban, in the next few days. Tesco's Fresh & Easy is a non-union food and grocery retailing chain, as is Trader Joe's, Wal-Mart and Whole Foods Market in California, along with a few other minor, smaller retailers. All of the state's top supermarket chains and nearly every major independent are unionized food retailers.

Tesco's Fresh & Easy Neighborhood Market USA, which is based in Southern California, hasn't issued a public written statement on the proposed legislation to date. In fact, we've learned the grocery chain might not even be aware of the proposed bill.

Reasons for the legislation

Assemblyman De La Torre's office, when asked for a few reasons why the legislator is proposing the bill, sighted websites which instruct teenagers on how to scam self-service checkout lines to steal or buy alcohol, along with listing the reasons offered by the Marin Institute, for sponsoring the ban.

One of the websites mentioned by the Assemblyman's office is, which offers advise on ways to shoplift and buy alcohol to underage teens. The site even has a section about Tesco, as well as on various other stores which offer self-service checkout.

Here's a quote from the website: "In most small stores, there will be one (extremely bored) clerk per four terminals." It then goes on to detail ways to pay for one item and walk out with another, along with other "tricks," for example.

It would appear this proposed self-service-only checkout alcohol sales ban legislation is the last thing Tesco's Fresh & Easy needs at present from both operational and public relations standpoints.

The grocery chain is currently trying to increase sales and margins in its stores, of which many continue to underperform in terms of corporate sales targets.

Additionally, Tesco is in the midst of a very aggressive campaign being conducted by the United food and Commercial Workers (UFCW) union, which we've reported on extensively in Fresh & Easy Buzz, designed to get Tesco PLC and Tesco Fresh & Easy senior executives to meet with union leaders to discuss the possible unionization of the Fresh & Easy Neighborhood Market USA chain.

Third, Fresh & Easy also is in the process of opening 30 new stores, the majority of which are in Southern California, over the next 90 days. Every one of those new stores will have self-service checkout only and sell beer and wine, just the all of the current stores do.

Further, Tesco's Fresh & Easy has numerous applications for off-sale beer and wine permits for future California stores pending with the state's Alcoholic Beverage Control Department. The proposed legislation is likely to shine a spotlight on this. The issue of new stores of any kind selling alcoholic beverages is becoming an issue throughout California, where numerous state and local officials, along with community groups and citizens, feel there already are too many stores selling the adult beverages.

The proposed legislation offers the potential for a spate of further negative publicity for Tesco's Fresh & Easy, along with a major distraction from opening the new stores and increasing sales in the existing ones.

Analysis: Self-checkout-only poses other problems for Fresh & Easy

Fresh & Easy Buzz has identified other problems we believe are posed for Fresh & Easy by having a self-checkout-only system.

For example, Fresh & Easy stores don't accept paper personal checks, nor do they cash company employee payroll checks or U.S and State Government Social Security and Welfare Checks, two things every major supermarket chain and independent, with only minor exceptions, do in California, Nevada and Arizona. The Fresh & Easy grocery stores only except ATM cards and credit cards, in large part do to its self-checkout model and how the system is designed.

Numerous consumers aged 65 and over still prefer to use paper checks rather than debit or credit cards for their grocery shopping. Over the last seven months, Fresh & Easy Buzz has interviewed and talked with numerous senior citizens who've said they didn't go back to a Fresh & Easy grocery store a second time to shop because of the policy of not accepting paper personal checks. Many also have said they just plain don't like the self-service checkout only system as well.

Since people age 55 and over are the fastest growing age group in all three states, it seems like a self-defeating policy for Fresh & Easy not to accept paper personal checks. Why would a retailer which has as its goal to be a food store for "everybody"exclude a significant segment of a fast-growing population?

For example, a simple check-in with officials at Wells Fargo or Bank of America, the two leading banks in the Western USA, will provide data showing just how many consumers over 65 years of age still use paper checks rather than ATM cards at retail stores. It's one reason these major banks haven't eliminated paper checks, although they would like to for cost-cutting reasons.

Additionally, every major supermarket chain (and Wal-Mart), along with nearly all major independent grocers in California, Nevada and Arizona, has as a policy not only to cash employee payroll checks, but to encourage it as well. This is because these retailers know what a lucrative form of business this is. Many consumers, especially lower income ones, often use the supermarket or Wal-Mart as their bank, cashing their bi-weekly payroll check at the store, buying lots of groceries, then using the remainder of the money to pay bills.

This for example is why Wal-Mart has become so aggressive in marketing its payroll check cashing service to consumers. It loves the business it brings. In fact, Wal-Mart recently reduced the rates it charges to cash payroll checks. In the past, Wal-Mart would charge a higher amount to cash the payroll checks (and the Social Security and other government checks) depending on how large of an amount the check was. Earlier this year, Wal-Mart instituted an across the board charge of $4 per-payroll check cashed, regardless of the value of the check.

Safeway Stores, Inc., Kroger Co., and SuperValu, Inc.-owned chains in the three states also cash payroll and government-issued checks. In fact, all three of these chains and Wal-Mart are currently asking shoppers to cash their U.S. government economic stimulus tax rebate checks at their respective stores, and even giving shoppers a 10% bonus if they cash the government-issued checks with them. For example, a $1,200 tax rebate check cashed at stores operated by all four of these companies gets a consumer a bonus of $120, generally in the form of a store gift card.

All four chains have reported a strong consumer response to this check cashing program. However, because of its self-checkout model in part, since Fresh & Easy doesn't cash checks of any kind, it's missing out on all this tax rebate money, which is going to Safeway, Kroger, SuperValue and Wal-Mart-owned stores in California, Nevada and Arizona.

Plastic or plastic

Another problem--and one we see creating a serious environmental negative for Fresh & Easy at any time--is the fact the grocery chain only offers free plastic grocery bags in its stores, and not the option of free paper grocery sacks like every other chain and independent in California, Nevada and Arizona does. At Fresh & Easy it's "plastic or plastic," while everywhere else its "paper or plastic."

Fresh & Easy stores sell what they call "bags for life," which are reusable synthetic bags which cost a consumer 20-cents each. The stores also sell reusable canvas shopping totes. But there's no such thing as a paper grocery sack at a Fresh & Easy store.

The reason for Fresh & Easy stores not offering the paper grocery bag option in large part is because the design of the self-service checkouts in Tesco's Fresh & Easy grocery stores aren't built to accommodate paper grocery bags. Of course, the checkouts could be modified to do so with just a little bit of good old American (and British) ingenuity.

The single-use plastic grocery bag issue is arguably the number one consumer-focused environmental issue facing food and grocery retailers today, especially in California, but throughout the U.S. as well.

For example, the city of San Francisco has banned the use of plastic grocery bags in food, grocery and drug stores of 10,000 square feet or larger. The use of paper grocery bags is fine under the law.

Tesco plans to open at least two of its Fresh & Easy grocery markets--both over 10,000 square feet--in San Francisco early next year. Therefore, it will have to either offer free paper grocery bags only at those stores, or force shoppers to either bring their own bags or buy its reusable "bags for life" or canvas shopping bags, which isn't going to go over with the majority of shoppers, even in uber-green San Francisco.

The nearby city of Oakland also passed a similar law banning the plastic bags. That law has been overturned by a county court because of a lawsuit filed by a plastics industry group. However, the city is rewriting the legislation.

And, ironically, the city of Manhattan Beach in Southern California, where Tesco just opened its latest Fresh & Easy grocery store (number 62) on July 2, has just recently passed a law which will ban food and grocery stores from using single-use free plastic grocery bags, like the ones Fresh & Easy stores use.

The Southern California city of Malibu also recently passed a similar single-use plastic grocery bag ban. Santa Monica is currently proposing a similar ban, as are cities throughout California and other states in the U.S.

Los Angeles County is considering enacting not a bag ban, but rather a per plastic grocery bag fee, in which shoppers would have to pay 15-cents or so for every single-use plastic bag they request in a supermarket. Since Tesco's Fresh & Easy doesn't offer the paper option, that could be rather difficult--and irritating--for shoppers.

Palo Alto in the San Francisco Bay Area also has passed a per-bag fee law, and numerous other California cities and counties are debating between passing outright bans or bag-fee laws.

In other words, any food and grocery retailer in California especially, but also throughout the U.S., currently not offering paper grocery bags as an option, but rather just offering plastic grocery bags, is not only out of the loop in our analysis, but is setting its grocery chain up for a major anti-environmental retailer grass roots and media campaign. In fact, we are surprised one hasn't started already over the plastic bag-only issue at Tesco's Fresh & Easy stores.

A number of U.S. food and grocery retailers are doing the opposite of Fresh & Easy on their own. Whole Foods eliminated the use of single-use plastic grocery bags completely in all of its U.S. stores in April of this year. And Trader Joe's, the grocer most consumers compare Tesco's Fresh & Easy with, uses paper bags as the "default grocery bag" in all of its stores. In other words, unless a shopper specifically asks for a free plastic grocery bag, they get paper.

Fresh & Easy Buzz has been suggesting to Tesco's Fresh & Easy Neighborhood Market that it offer a mix of self-service and full service checkout in its stores rather than trying to force-feed self-service checkout-only on shoppers.

Fresh & Easy stores offer what they call "assisted checkout," in which if a customer goes over to a store clerk and asks for help, the clerk will help the customer check out. However, any of you who've worked in food and grocer retailing in the U.S. for more than an hour, know that when customers have to ask for something like service-checkout, which they normally get on a default basis, they generally don't ask. Rather, they vote with their feet.

All along Tesco's Fresh & Easy has not only said they have absolutely zero problems with the self-checkout-only system, they've even tried to demonstrate through releasing "internal research data" to a British-based supermarket trade publication that it's pioneering what will soon become the norm (full self-checkout) in American food and grocery retailing, which of course is a fantasy.

American shoppers like options. Giving them a mix of self and full-service checkout fits their behavior patterns. It also appeals to "everybody," which is Fresh & Easy's stated target market. Force-feeding them self-service-only drives many of them away, which Trader Joe's and others are just loving, by the way.

Perhaps because of the proposed legislation regarding a ban on alcohol sales at stores that offer only self-service checkout--which we don't believe will pass and become law the way it's currently written--along with the problems we've detailed above involving having a self-service checkout system only, Tesco's Fresh & Easy will re-evaluate its offering.

After all, good marketers usually like to offer consumers choice, even within formats like limited assortment grocery stores that by their very design do have to eliminate some choice. The key is to reduce the choice at the margins--limited product assortments and the like--but not in key areas like service. Offering only self-service checkout doesn't limit the options like a mix of self and full-service would. Rather it eliminates any consumer option in the key area of checkout.

Sometimes proposed new laws like alcohol sales bans, plastic grocery bag bans and fee schemes, not to mention a significant loss of potential business because of not accepting or cashing paper checks, combine to shake up a retailer, which forces it to take a second look at policies and practices it previously thought were perfect. We shall see.


John said...

Well, in my books if you anger a Californian Democrat and a union then you are obviously doing something right.

I also believe that F&E is doing a great job and shouldn't wander from it's progressive path.

Self checkout does take a while to get used to but it is great. The cashiers at (non-union) Trader Joe's and (union) Ralphs/Vons are ridiculously slow and are an unnecessary time burden to the modern consumer. Retail employees are becoming less and less competent in providing the customer with a "welcome" service so F&E is just nipping this problem in the bud. Let the customer be his own boss and checkout at his own pace. And in terms of "options", it is great for a customer to know they don't have to wait in line at the few staffed registers when they can check out on their own.

Filling out a paper check is an unnecessary time burden that young consumers like myself have no patience for. No nation has more credit cards in circulation than the US so those customers without credit cards must have serious problems that explain why they don't. Half my American relatives are over the age of 70 and they would all choose credit cards over hand written checks.

Sadly, your argument also champions the current popular misconception of shopping bags. With a few exceptions, American companies are overly myopic and have to reinvent the wheel instead of looking towards the solutions espoused by their neighbors. Granted, single use plastic bags are not good for the environment -- but the same goes for single use paper bags! I have been in touch with the LA mayor's office regarding this issue and we both agree on the benefits of multiple use bags like those sold at European retailers like Aldi and Lidl. Although we should all try using cloth bags, the reality of the situation is that customers can't prepare for everything. In this case, sturdy plastic bags are the next best alternative for the environment. F&E has sturdy plastic bags, unlike the double bagged paper bags at TJ's and doubled bag plastic bags at Ralphs/Vons.

I'm not saying I'm typical, but for every customer who wants to write a check and wait in a long line and throw away single use paper bags, there are customers like myself who don't. Furthermore, I have no other option than F&E who operates a store that I like. Check-writing Senior citizens with plenty of patience not only have other options but they are also not the typical customer to try out something new like F&E.

Just like Steve Jobs should be commended for not giving in to the demands of the "status quo" I commend F&E for blazing a new trail. If they stay around long enough, I have no doubt in my mind that future retailers will follow and the feudal policies of legacy retailers will be nothing more than history.

Anonymous said...

I tried to view commentor John's blogs but they are "only open to approved readers." Does approved mean Fresh & Easy employees only?

Anonymous said...

Regarding checks-----nothing annoys me more than being in line behind someone who wastes time filling out a check. And I am in that 50's generation and have traded eye-rolling with others in line even older as we waited.
I really have enjoyed F&E and now go there once or twice a week. If someone's going to steal booze, they will do it even if you have wall to wall clerks. This is just another attempt at "nanny laws" to protect us from ourselves. Politicians, lay off! I like what F&E is doing. I like being able to come in, buy a bottle of champagne and a steak and be out in 3 minutes. I don't need politicians ruining a good market.

Anonymous said...

John, hate to tell you this, but I'm guessing a large portion of "the types of people who don't have credit cards" are exactly the consumers that Fresh & Easy say they know, the ones that live in the food deserts and probably live paycheck to paycheck. Matter of fact, Fresh & Easy has always said they wanted to appeal to everyone, so that also includes the young and old...even the ones you probably consider to be "dinasours" because they still write checks.

I personally love the paper bags with handles that Trader Joes uses. I use them as trash bags in my kitchen so they get recycled immediately so I don't consider them "single use bags."

When I shop, I like to have choices. I like to be able to choose weather I buy 1 apple instead of being forced to buy 4. I also like to be able to choose a brand over a private label. And lastly, I like to be able to have the choice to go to a checkout where someone else is scanning my products and where I can get money back from my ATM card....or gasp...even write a check! Since it's America..I'll vote with my feet and go to stores where I have those choices.

Anonymous said...

John, I think it's cool you are a post-fuedal policy consumer, whatever that means. However, as you say:

"I'm not saying I'm typical, but for every customer who wants to write a check and wait in a long line and throw away single use paper bags, there are customers like myself who don't."

Well, at 65, I'm one of those "seniors" who likes to write a check. And I and my fellow "seniors" have more disposable income than the other two generations behind us combined do. We also are the fastest-growing age group.

Any supermarket chain that avoids say even 25% of us who might prefer to write checks, will unlikely never become a leader in the market.

Like most of our friends, we spend far more at the supermarket than we need to. We do so because we can afford to, and enjoy food and entertaining.

My wife and I went into a Fresh & Easy near us when it first opened. We basically liked the store, and would shop there regularly, but we do not like self-checkout or do we want to ask for help everytime we are in the store. We also prefer paper bags over plastic. We also write checks. So, we never returned.

So, Safeway, Trader Joe's and AJ's Fine Foods gets our $300 a week in food spending.

Having spent 35 years in corporate America, including 10 years at a startup company, I can tell you that whenever a business writes off a demographic group, they're success potential drops dramatically.

Trader Joe's has only about 300 stores in the U.S. But they are the 24th or 25th largest grocery chain in the country. That's pretty amazing. Do you think when Fresh & Easy gets to 300 stores, they will be anywhere close? That will be the true test in terms of comparing the two.

Andrew Beeson

John said...

Interesting comments. Here's a quick response.

I do not work at F&E, but having lived in Europe and Asia for many years feel that American grocers completely neglect customers who value convenience at a fair price.

To be convenient, F&E obviously had to make some choices in the past and will definitely make some changes in the future. Most importantly, they are a break from the old. Walmart can offer it's abundance of services because their stores are so big there is a limit to the number of SKU's that can have a decent turnover and therefore the space is better served with something beyond the products by which Walmart reached it's current state (it will be interesting to see what tradeoffs Walmart will make with their small format outlets).

Regarding F&E's reaching "everyone" with their novel approach, an analogy that comes to mind is self serve gas. I can imagine some folks thought it absurd to actually have to leave their car to not only pour their own gas but also swipe their own credit card without getting their oil changed or windshields wiped (those were the days). I also understand that Brooks Brothers used to have their salespeople stand behind counters like bartenders and service every customer directly. Too bad those customers didn't have the choice to serve themselves.

I still think F&E wants to appeal to everyone, except that some customers will have to adjust.
Customers are not predetermined robots, instead they are human beings who progress through life. I used to hate eating fish but now I enjoy it. I used to think paper bags were good for the environment because they are from trees. I used to write checks in college but forgot how after living in Europe where they haven't been used since JFK spoke in front of the Berlin Wall (ok, I'm exaggerating on that point -- I think).

In terms of demographics, American society is getting closer and closer to Europe by the day. Americans are getting older and in terms of households, singles are the predominant category for the first time on record. Singles don't need a full loaf of toast or 4 foot french bread. They want something they can carry to their apartment on the 5th floor.

Also, paper bags are not a good idea for garbage. They are permeable and therefore leak grease and juice leading to bacteria and germs (and an awful stench). For composting they are redundant.

An interesting observation I had while in Germany
was regarding their plastic bags. Despite recent improvements, the average American still recycles only half the amount of the average German. Instead of spreading the cost of "free" bags across their entire assortment, German grocers let the customer decide if they want to buy a new bag or bring their own. When given the choice in this democratic marketplace, recycling conscious German consumers go for plastic bags, albeit much sturdier and larger than those available here in the US. It is incomprehensible to me why any truly free society would want to have a municipal, state or federal lawmaker make this decision for him.

Finally, I don't think F&E should be measured by the sales volume of 300 stores. They are expanding at a much faster pace than TJ's since it's inception and they appear to have lower labor costs and thereby higher productivity. This should enable it lower margins which in the end provides the customer with the biggest value.