Friday, September 26, 2008

Tesco's Fresh & Easy Neighborhood Market Experiments With A $1-Off Online Discount Coupon; But its Paper Coupons Offer More Than Twice the Value

Tesco's Fresh & Easy Neighborhood Market has created it's first online store discount coupon, which the retailer is offering at a special link on its website for a limited time, ending on September 28.

Consumers can download and print the coupon from the website here, then use it while shopping at the Fresh & Easy stores.

The online coupon, which has the marketing message above at the link, offers shoppers $1-off total purchases of $10 or more at Fresh & Easy markets. The online coupon is of a far less value (less than half ) than the retailer's now famous $5-off total store purchases of $20 or more paper coupons, which it direct mails to households near its 87 stores in Southern California, Nevada and Arizona, and gives out in its stores.

The online $1-off coupon isn't a replacement or substitute for the $5-off coupons, which the grocery chain continues to use. Rather, it's being offered in addition to those coupons, along with being an attempt to further target frequent online users and visitors to the company's website

Few people (including the consumer press) are aware of the online coupon though, since Fresh & Easy hasn't promoted it in its usual fashion of issuing a press release. As of Wednesday we hadn't seen or heard of any signs advertising it in the Fresh & Easy stores either. Tesco Fresh & Easy Neighborhood Market director of marketing Simon Uwins does have a one sentence September 25 post about it on his company blog though.

In fact, unless you use this link you can't access the $1-off coupon directly from the Fresh & Easy website home page. At least that's the case as we write and publish this piece.

Go figure.

In large part, we think the online coupon, particularly because of its limited duration and lack of widespread promotion, is a way for Tesco's Fresh & Easy to test the potential of using the Internet and its website more than it currently is doing for store promotions and discounts.

However, since Fresh & Easy shoppers are used to the $5-off on purchases of $20 or more (a 25% savings if used for a $20 purchase), paper coupons they receive in the mail and at the stores, we doubt they will be nearly as excited about the $1-off purchases of $10 or more online coupon, since it represents only a 10% value on a $10 purchase, which is less than half the value of the $5-off on $20 paper coupons.

The $1-off value coupons are probably more in-line with what Fresh & Easy should be offering in terms of coupon value though to avoid what we believe is to a large degree a perception in the minds of consumers (which we believe is occurring with the ubiquitous use of the $5-off coupons) of Fresh & Easy as a "Hi-Low" retailer rather than the everyday low-price image it wants to create, along with the fact that at some point the retailer will have to reduce the value of those $5 coupons if it wants to increase its margins, which are far lower than the U.S. industry average at present.

A retailer can charge-off as a "promotional or advertising" expense deep discount coupons like Fresh & Easy's $5-off on a minimum $20 purchase vouchers for a given period of time, theoretically protecting on paper its gross margins.

However, at some point it has to deal with real gross margins, and the use of 25% value deep discount coupons at the high level in which Tesco's Fresh & Easy uses the coupons has a significant suppression effect on those gross margins. This is particularly serious for Tesco's Fresh & Easy Neighborhood Market since its gross margins, even taking away the extensive $5 coupon use, need significant improvement, according to sources who have been and are in positions to know such things.

That Tesco's Fresh & Easy is experimenting more with its website and online marketing is smart though. The retailer does far too little online marketing and promotion compared to numerous other retailers.

For example, Aldi USA posts a weekly ad on its website and sends it to those who sign up via a weekly email alert. [See these website special purchases as well.] The retailer also has a special "value calculator" on its website in which users can find out "how much cheaper it is to shop at Aldi" than it is to shop its competitors. The small-format, deep discount grocery chain, with 950 U.S. stores, does other special marketing and promotional activities via its website as well.

Tesco's Fresh & Easy seems, based on our research, to have its strongest following among young consumers, those in about the 18 -to- 35 year-old age group, with the highest segment of that group cohort being in the 18 -to- 25 year-old age group, in our analysis.

Since consumers in this age cohort also happen to be the heaviest and most frequent and savvy users of the Internet -- not just on computers but on cell phones and other portable devices as well -- it would behoove Tesco's Fresh & Easy Neighborhood Market in our analysis to make far more frequent -- and creative -- use of the Internet and its website than it is currently doing.

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