Sunday, September 7, 2008

Analysis & Commentary: Should Tesco's Fresh & Easy Put An Asterisk Next to its Motto? Yes; Unless it Corrects Four Operational Omissions


The motto of Tesco's Fresh & Easy Neighborhood Market is: "Making wholesome food accessible and affordable to everyone."

The motto is based on Tesco's positioning of the small-format combination basic grocery and fresh foods' chain as being a neighborhood-oriented grocery store designed to serve all consumers as their primary or secondary (fill-in) shopping venue.

This premise is similar to that of most U.S. supermarket chains and mass merchandisers like Wal-Mart. In fact, the original definition and purpose of the supermarket was and is to serve as a one-stop food and grocery retail shopping venue for consumers, regardless of the size of the store.

Tesco's Fresh & Easy however differs in many ways in its operational focus from nearly all other American supermarkets. We aren't referring to the fact its stores are smaller than most U.S. supermarkets, or that is offers a limited assortment of products. Nor are we referring to its merchandising philosophy. There are many grocery stores and supermarkets that are smaller than Fresh & Easy, have different formats and the like.

Rather, we're referring to some of its operational policies that in our analysis make it look more like an elitist specialty store rather than a food store that makes wholesome food accessible and affordable to everyone, which is its motto and positioning.

Fresh & Easy's everyday prices on basic groceries, natural, organic and fresh food and grocery items are good. They are about the same price everyday as deep discounters like Wal-Mart and Costco, and overall a bit lower everyday than most of the competing supermarkets in its market regions of Southern California, the Las Vegas, Nevada Metropolitan region, and the Phoenix Metropolitan region in Arizona, where the current 75 Fresh & Easy stores are located.

However, unlike Wal-Mart and virtually every supermarket chain and independent in America (those that position themselves for everybody), Tesco's Fresh & Easy has a number of operational practices we argue make its claim of being a grocery store for everybody questionable, along with its motto of "Making wholesome food accessible and affordable to everyone" not ring true.

In particular, lets examine four key operational practices (or exclusions) of Tesco's Fresh & Easy which we believe make this point.

Fresh & Easy doesn't accept (paper) personal checks

Virtually every supermarket and mass merchandiser that positions itself to serve all consumers in the United States accepts paper personal checks from shoppers. But not Tesco's Fresh & Easy Neighborhood Market You can pay for your purchases at Fresh & Easy with a debit or credit card - but not with a personal check.

According to surveys conducted by the American Association of Retired Persons (AARP), the national association for older Americans, over half of its millions of members aged 65 and over say they prefer to pay for their purchases at the grocery store with paper personal checks rather than debit or credit cards. Additionally, a significant percentage of those over 70-years old have said they don't even use debit cards. Many who rely only on social security have neither debit or credit cards. Other than using cash, paper personal checks are their only means of payment.

This is a fact not lost on America's banks. The banking industry would love to eliminate paper checks completely. However, because of the preference of primarily older Americans, the wealthiest and fastest growing segment of the population in the U.S., they don't.

Therefore, Tesco's Fresh & Easy is excluding the preferences of America's fastest growing population, those 65 years of age and over, by not accepting paper personal checks in its stores. As a result, the retailer's motto: "Making wholesome food accessible and affordable to everyone," has to be qualified by saying: "Except for the 50% of American consumers age 65 and older who say they prefer using paper personal checks to pay for their groceries at the supermarket.

Fresh & Easy doesn't cash payroll checks

Virtually every supermarket in America, along with Wal-Mart, cashes payroll checks for customers. In fact, most grocery retailers welcome and encourage it because the retail food industry figured out a long time ago it is a great way to create and keep primary customers.

Mega-retailer Wal-Mart even lowered it's payroll check cashing fees earlier this year to encourage more consumers to cash their payroll checks at its stores. Supermarkets (a total of about 6,000 stores) owned by America's three largest grocery chains, Kroger, Supervalu and Safeway, all cash payroll checks in the stores.

Previously Wal-Mart charged a minimum of $4 to cash a payroll check. Then, based on the amount of the check, a percentage charge was added in various increments. But earlier this year Wal-Mart went to a flat $4 fee regardless of the size of the payroll check as a way to encourage more consumers to cash their checks and do business with its stores. Many supermarkets wave the customer fee to cash payroll checks with a minimum dollar amount purchase.

Wal-Mart and America's supermarkets consider cashing customer payroll checks as a customer service, as well as a way to create shopper loyalty.

It's a fact that millions of working poor in the U.S. don't use banks. They cash their payroll checks at a Wal-Mart or a Kroger-owned store, or at other supermarkets (including their local independent), buy groceries, and then use the rest of the money to pay their bills. By cashing these checks for no or a minimal fee, supermarkets save workers who don't have bank accounts money because the only other alternative is to go to check cashing stores, which charge the worker a huge percentage of the check's value to cash it.

Tesco's Fresh & Easy doesn't cash payroll checks for the same reason it doesn't accept personal paper checks. That reason is because it believes there is a labor savings from not having to process the paper vouchers and checks. There is a labor savings from not doing so. But we argue the benefits of doing so far exceed the savings, as does Wal-Mart and nearly every other supermarket chain in the U.S. believe is the case.

Additionally, Fresh & Easy's self-service front-end checkout system also plays into this decision, since processing the paper checks and vouchers generally require employee assistance. Ironically though Fresh & Easy seems to have no problem handling its own $5-off paper coupons, which it distributes via the mail and in the stores.

Not cashing payroll checks, which is Tesco's right not to do, like virtually every American supermarket chain does, is another element that makes living up to its motto: "Making wholesome food accessible and affordable to everyone, rather difficult to do, in our analysis. (The asterisk here is: All consumers except those low-income workers who would like to be able to cash their payroll checks at a Fresh & Easy store like they do at Wal-Mart, Safeway or Kroger but can't do so, and therefore won't likely shop in the Fresh & Easy stores because they will shop where the retailer will cash their payroll check.)

Fresh & Easy doesn't accept W.I.C. vouchers

The U.S. federal government gives the lowest of low-income (many have no income at all and are on welfare) mothers what are referred to as W.I.C. (Woman's, Infants and Children's Program) vouchers to help them purchase nutritional food for their infants and toddlers.

Unlike food stamps, which can be used by low-income Americans in that federal aid program for a wide variety of food products, W.I.C. vouchers are only distributed to mothers, and can only be used at the supermarket to buy specific items such as infant formula, whole milk, cereals, certain types of juices, some varieties of fresh fruits and vegetables and a few other healthy foods. The paper W.I.C. vouchers are given to these low-income mothers for no charge. Retailers redeem them just like a check, getting the full-dollar face-value amount from the federal government.

Tesco's Fresh & Easy, unlike Wal-Mart and virtually every chain and independent supermarket in the U.S., does not except W.I.C. vouchers in its stores. Some convenience stores, farmers markets and drug stores in the U.S. also except these vouchers from poor mothers.

The primary reason Fresh & Easy doesn't except W.I.C. vouchers is for the same reasons it doesn't except personal or payroll checks. Those reasons as mentioned above are because a part of Tesco's model with Fresh & Easy is to eliminate the processing of paper, as a labor and thus cost-saving method, along with its self-service checkout system, which isn't designed for customer service.

Fresh & Easy stores except debit and credit cards. They also take U.S. government food stamps because those now are distributed to people in the form of plastic debit-type cards rather than in a paper form as they have been in the past. Stores process the plastic card like they do a debit or credit card.

By not excepting W.I.C. vouchers from the poorest of the poor mothers, we argue Tesco's Fresh & Easy isn't living up to its motto of "making wholesome food accessible and affordable to everyone", unless that "everyone" has an asterisk next to it that says: "Besides poor mothers who would like to use their W.I.C. vouchers at Fresh & Easy stores to purchase essentials for their infants and toddlers...but can't."

Fresh & Easy doesn't accept manufacturers' coupons

Wal-Mart and every supermarket chain in the U.S. accepts manufacturers' "cents-off" coupons, those little paper squares of free money that arrive in consumers homes mostly in the mail or tucked in the Wednesday or Sunday newspaper. The coupons are increasingly available on the Internet as well.

Manufacturers issue these coupons for their branded products. Consumers redeem them in the stores for a discount. Retailers then ship the coupons to a clearing house and are paid back for the face value of the coupon plus a small handling charge. There is a certain amount of manual labor involved in processing the coupons by retailers. However, in many ways it's "free money" to them in that they are paid back the value of the coupons by the clearing house, which is then paid by the manufacturer.

Tesco's Fresh & Easy Neighborhood Market doesn't accept manufacturers' "cents-off" coupons from shoppers however. If you're a coupon-clipping shopper, which is a growing trend in the U.S. in the current poor economy, Fresh & Easy isn't going to be your neighborhood grocery store since the markets don't accept them.

A just-released survey from the U.S. Promotional Marketing Association's Coupon Clipping Council found that a whopping 89% of the consumers surveyed reported using manufacturers' "cents-off" coupons at the supermarket.

Even more significant, 97% of the 1,000 consumers surveyed who said they are primary shoppers in a family reported using the coupons for food, grocery and household items at the store.

Further, the coupon users in the survey report saving an average of seven percent on their total grocery bill by using the manufacturers cents-off coupons at the supermarket. You can read more about the survey here.

With soaring food and grocery price inflation in the U.S., numerous consumers who've never before used the manufacturers' coupons are turning to them as one way to save money at the grocery store.

While it's true Tesco's Fresh & Easy distributes it's own $5-off coupons good on any total grocery purchase of $20 or more, that's a different process than excepting manufacturers' coupons. Why? Because Fresh & Easy could stop issuing the $5 coupons at anytime, and will have to do so eventually if it expects to make any money in its stores. The manufacturers' coupons however are a constant, something consumers can always count on as a money saving choice if they choose to use them in the grocery store.

Fresh & Easy also issues the coupons because about 60 -to- 65% of the items sold in the stores are under its fresh & easy store brand label. However, that still leaves 35 -to- 40% of manufacturer branded items that shoppers could use the manufacturers' "cents-off" coupons for in order to save money on various items in the Fresh & Easy Neighborhood Market stores.

In fact, since less than half of the items in the stores are manufacturer brands, which means Fresh & Easy Neighborhood Market would receive far fewer manufacturers' coupons than a typical supermarket gets, we find it difficult to understand why CEO Tim Mason believes it would be too much of a labor expense (vs. the benefits of doing so) to accept the coupons in its stores.

Tesco's Fresh & Easy doesn't except the manufacturers' coupons for the same reasons it doesn't accept paper personal checks, W.I.C. vouchers or cash payroll checks: That elimination of manual paper processing combined with its self-service checkout system.

It seems to us though that even if only 50% of U.S. consumers, rather than the 89% in the survey, regularly use manufacturers' "cents-off" coupons, that's a huge percentage of the consumer population for Fresh & Easy to exclude by not excepting the coupons in its stores.

Can the motto, "Making wholesome food accessible and affordable to everyone" ring true if such a large percentage of consumers use manufacturers' coupons but yet aren't able to do so at Fresh & Easy Neighborhood Market grocery stores? You be the judge. We suggest it can't.

Conclusion

Our analysis isn't designed to suggest Tesco's Fresh & Easy doesn't have a right to not accept personal checks and W.I.C. vouchers from poor mothers, or to not cash payroll checks or accept money-saving manufacturers' coupons from shoppers. That's the retailer's choice. And it's the shopper's choice to shop where they can redeem their W.I.C. vouchers (in this case it is no choice) and manufacturers' coupons, use personal checks, an cash their payroll checks.

However, based on these four exclusions - operational practices that virtually every other American food and grocery retailer does as the norm - our analysis is that Tesco Fresh & Easy Neighborhood Market's positioning that it is a food store for everybody is incorrect, and that its motto: "Making wholesome food accessible and affordable to everyone," needs to have an asterisk in front of it.

That asterisk signifies that the for everyone excludes the following:

*Older consumers, and consumers in general, who prefer paying for their purchases with paper checks; or do not even have a debit or credit card.

*The working poor who don't have a bank and would like to cash their payroll checks at Fresh & Easy like they can at Wal-Mart and virtually all other supermarket chains...but can't.

*The poorest of the poor mothers who receive U.S. federal government WIC vouchers so they are able to purchase infant formula, whole milk, juices and other essential nutritious items for the children, and would like to shop at Fresh & Easy and use the vouchers...but can't.

*The tens of millions of American consumers who use and count on manufacturers' coupons to save them money on their groceries at the supermarket. Since they can't use the coupons at Fresh & Easy stores, their preference is essentially an exclusion from the everybody list.

Based on these excluded segments of the consumer population, everybody seems to have shrunk to perhaps half of everybody.

It's our analysis that Tesco's Fresh & Easy is losing out on a substantial amount of business by excluding consumers who prefer to use paper personal checks, cash payroll checks, redeem W.I.C. vouchers and use manufacturers coupons, but can't since the stores don't accept any of these four common transactional forms.

A real irony involves not taking the W.I.C. vouchers. One of Tesco's key strategies with its Fresh & Easy chain it says is to locate stores in low-income inner city neighborhoods like south Los Angeles and elsewhere that are currently underserved by grocery stores that sell basic groceries and fresh foods at reasonable prices. So far the grocer has located two (Compton and Eagle Rock) of its 75 stores in such neighborhoods in Los Angeles county and is building a new store in a low-income neighborhood in south Los Angeles.

What is ironic is it is just these low-income inner city neighborhoods where the majority of W.I.C. vouchers are distributed to poor mothers, many of them single mothers. Without the vouchers, which can only be used for the items stated on them, it's most likely that many of these mothers would not be able to purchase infant formula and other nutritious items for their children. The infants and toddlers would go without. That's why the program was created in the first place.

So, here you have a retailer with a strategy that says it's going to open food stores in these neighborhoods because it wants to provide the residents with better food choices, convenience and low prices, as well as make a profit as a grocer of course. Yet, it is in these very low-income, underserved neighborhoods where the neighborhood grocery store should take the W.I.C. vouchers because it will in most cases be the only decent food store available for residents.

Yet in the case of Fresh & Easy, it doesn't take the W.I.C. vouchers. Therefore, these poor mothers and their children will have a grocery store right in the neighborhood that offers basic groceries and fresh foods--including infant formula, nutritious cereals and fresh juices--at affordable prices but they can't shop at that store using their vouchers.

Therefore, they still will have to ride on the bus to the supermarket or Wal-Mart miles away that accepts the W.I.C. vouchers. Although we don't think it's intended by Tesco, there is a certain cruelty in that scenario.

Strategically Tesco's 'locate Fresh & Easy stores in food deserts but not accept W.I.C. coupons from poor mothers scenario' is like completing half of a puzzle and then declaring you are done. Not only is it incomplete but it makes absolutely no logical sense. Not to mention the poor public and community relations practice of not accepting the W.I.C. vouchers.

We suggest Tesco take a look at each of these four practices in light of its positioning for Fresh & Easy and its motto, which is: "Making wholesome food accessible and affordable to everyone." We think that asterisk is in order at present.

Or better yet, Tesco might consider completing the puzzle by including the four operational missing pieces described above in how it runs Fresh & Easy. If it does so, we think the current for everyone positioning and Fresh & Easy store motto would be warranted without the asterisk. If not, we urge the retailer to add that asterisk for the sake of full disclosure.

4 comments:

Anonymous said...

I was aware they don't take the checks and coupons but not the WIC coupons. That's outrageous and something they should change. The program is to provide healthy foods for babys who would not otherwise get them. Fresh Easy should be on board with this like all the other markets are.

Andrey P. said...

I'm perfectly aware of 3 out of 4 facts. However this doesn't bother me much since the endpoint is average ratio of savings per certain list of products based on quality and freshness. My family shops at almost every grocery/retail place - Saveway, Walmart, Trader Joes, Whole Foods, Costco, you name it. Neither Costco nor Trader Joes accept manufacturing coupons - not a big deal. Savings from shopping there usually cover that mere cents of coupons' saving. When I'm interested in redeeming a coupon - I can go to Walmart or/and Safeway. So, the conclusion is - it doesn't matter if a grocery store accepts checks or not, if overall impression, quality and price is worth visiting the store - it will be added to the list of stores we visit regularly. Please leave all the rest to marketing wars.

Fresh & Easy Buzz said...

Thanks for your comment AudreyP.

The point of our argument though is that Tesco's Fresh & Easy is marketing itself as a grocery store for everybody, as their motto reinforces.

Neither Costco or Trader Joe's make that claim. Trader Joe's positions itself as a specialty grocer; Costco as a geral merchandise store that also sells food. It even requires membership to shop there. Therefore by it's very nature it is "specialty" not in the product sense of the word but in the retailing sense.

Tesco on the other hand says it's stores are for "everybody." Our point is merely that it is difficult to believe that when it does not:

>Take WIC vouchers from poor mothers.
>Accept paper personal checks.
>Cash payroll checks.
>redeem manufacturers'coupons.

These four omissions excludes lots of "everybody."

As we say in our piece, it is Tesco's perfect right to not accept these forms of transaction.

We just think such a policy is more of what a specialty store would do. ANd Tesco firmly says Fresh & Easy is not a specialty store. Rather, that it is a basic neighborhood grocery store designed to serve "everybody."

We've observed a store clerk having to turn a poor mother away when she tried to baby baby formula using WIC vouchers. The clerk was not pleased in having to do this.

We happen to think this poor mother is one of the collective consumer segment called "everybody."

Thanks again for your input.

Editor.

Buck Fifty said...

I went to Fresh and Easy today to check it out as they are new in my general area. They were missing quite a bit of things I wanted (name brands) and their prices were not very different from my usual Vons. When I found $20 worth of stuff to use my $5 off coupon I checked out and tried to use the coupon for the only item I could find in the store (Captain Crunch) the machine would not take it. I was pretty Irked and I wont be going there again.

To Audrey P.

Last time I went to another store and I saved over $80 using the "mere cents off coupons" you seem to think are worthless. Worked out to 66% off my bill.

I really hope F&E changes their ways or goes away.