Tesco Fresh & Easy CEO Tim Mason Says He's 'Deliriously Happy' With the Chain's Progress Thus Far; We Prefer Andy Grove's 'Only the Paranoid Survive'

The photograph of Tesco Fresh & Easy Neighborhood Market CEO Tim Mason is from today's The Times (United Kingdom). The Times caption to the photograph is: 'Not usually a man for taking the back seat, Tim Mason has led Tesco's drive into America and insists that his is 'deliriously happy' with the progress so far.'

We're pleased Tim Mason is 'diliriously happy.' He's worked hard since launching Fresh & Easy and certainly deserves some happiness on the one year anniversary of the first stores officially opening in November, 2007. But in our long experience we haven't know many if any CEO's who are 'dileriously happy' over sales, profits (Fresh & Easy has none of those yet) or any other aspect of their operations. They have some brief happiness. But no dilerium.

In fact, we prefer the philosophy of Andy Grove, the former CEO and one of the founders of Intel Corporation, who says "Only the Paranoid Survive." It's the philosophy (and he wrote a book of the same name) he used to create not just a company but a new industry, semiconductors. Intel is today one of the largest and fastest growing companies in the world. Having met Grove during his days building Intel, we just can't picture him ever being dileriously happy. But Grove's made so many Intel employees and shareholders millionaires he's received plenty of second-hand delirious happiness to last a lifetime.

In this November 12 piece in Fresh & Easy Buzz, "Analysis: Hard Times at Fresh & Easy - Northern California Expansion to Be Postponed or Shelved Do to Economy; But its Only a Symptom Not the Cause," we speculated briefly in writing as to why Tesco Fresh & Easy Neighborhood Market CEO Tim Mason chose a British newspaper, The Times, to give an exclusive interview about his decision to scale back growth at the Southern California-based fresh foods and grocery chain.

We also suggested it was in our analysis a less than brilliant move to do so because it just reinforces Tesco Fresh & Easy's problem of trying to operate a Western United States small-format supermarket chain using primarily British food and grocery retailing strategies and methods. If Fresh & Easy is an American chain like Tesco says it is, why then give breaking news to British papers and not a local paper like the Los Angeles Times?

And if you don't believe our "using a British food retailing model in the U.S." argument, we offer you just one bit of evidence told to us by more than one former Tesco Fresh & Easy Neighborhood Market employee.

That item is that the former corporate director of grocery at Fresh & Easy, who recently let the U.S. and returned to work at Tesco headquarters in the UK, used to regularly correct the chain's headquarters-based category managers and buyers who reported to her when they used American supermarket industry terms like product line rather the the British industry term product range. And upon hearing the common and often-used U.S. supermarket industry term average ring (means same thing as market basket size) the former director had no clue what the speaker was talking about, we've been told. Average ring wasn't used again by that employee.

We know in part of course why Mr. Mason (or maybe someone at Tesco corporate in the UK choice it for him?) chose the United Kingdom's The Times newspaper to give the exclusive interview to though rather than the Los Angeles Times, even though the LA Times is the newspaper of record in the region where Tesco Fresh & Easy Neighborhood market USA is headquartered and has about half of its stores.

First, Tesco has long standing, nurtured media relationships with UK newspapers such as The Times. And its media relationship with The Times is about the best one it has in the UK. Far better than say the relationship it has with the UK- Guardian.

Second, Tesco cares right now more about speaking to investors and UK stock analysts who follow Tesco and its Fresh & Easy USA venture, than it does doing something as logical as demonstrating its American street cred by giving such an exclusive interview, and breaking company news, to the local paper of record, the Los Angeles Times. Right now, investors trump market region realities. Plus, the Los Angeles Times might not of thought the news important. The UK is 'Tescoland.' But in the U.S. Tesco (Fresh & Easy) is a fledgling grocery chain in the view of many in the mainstream business press.

Lastly (and probably the most determining factor), evidenced by this article in today's The Times (UK), Mr. Mason and Tesco's Fresh & Easy got a "two-fer." In other words, by giving The Times the exclusive interview on November 11, which was published in the November 12 edition and carried some negative news for the grocer, Mr. Mason received a nice, extremely positive profile in today's Sunday Times, which actually has a higher readership than the daily The Times. As our friends in the UK like to say: A little "tit for tat."

The story even includes a brief Q&A by the writer with Tim Mason, featuring the kind of questions a corporate public relations department dreams about reporters asking.

The piece also features a photo (the one at the top of this piece from The Times) of Fresh & Easy Neighborhood Market CEO Tim Mason riding in a Fresh & Easy bicycle-powered rickshaw in front of Fresh & Easy's corporate office in El Segundo, California. The Times' story says the office is in Palm Beach, Los Angeles. That's incorrect. The Los Angeles Times would have caught that one fast.

The photo caption is: "Not usually a man for taking the back seat, Tim Mason has led Tesco's drive into America and insists that his is 'deliriously happy' with the progress so far." Funny thing though: Mr. Mason isn't smiling at all in the photograph. And the poor guy pedaling the bicycle rickshaw actually looks rather distressed.

We should say, we aren't putting The Times down for doing either of the interviews. This isn't a media criticism piece. Rather we're merely observing and offering some analysis on the topic.

The story is essentially a positive profile of Fresh & Easy CEO Tim Mason and Tesco's Fresh & Easy Neighborhood Market, as the piece's title: "Tesco's American dream is still in sight," might be the first clue to suggesting. We have no problem with that either. We are neither pro or con Tesco or Tesco's Fresh & Easy. We're merely humble analysts and writers after all.

Regarding the profile, we find this comment from CEO Tim Mason in the profile piece very interesting:

"Mr Mason, chief executive of Tesco's operation in the United States, believes that one of the biggest problems of the past year has been a failure to make enough of Fresh & Easy's price credentials. It claims to be 20 per cent cheaper than the average American supermarket, such as Ralphs or Albertsons, but it relies on an everyday low-price model rather than one-off specials, which can grab customers' attention."

We find it interesting for two reasons. First, it is one of the few, if not first, self-critical public comments we've observed CEO Mason make about his and his top executives' performance to date with Fresh & Easy. That's good. Self analysis, and some professional humility, generally leads to improved results. You've got to know, and admit, what you are doing wrong before you can change and fix it after all.

Second, we find it interesting because the quote sounds like it comes right out of Fresh & Easy Buzz. We've been writing regularly since about May of this year that Fresh & Easy needs (and it still does) to create and then tout and hammer home its stores' value proposition and message. We most recently addressed it in this piece on November 12. We also addressed it in an analysis piece in June, which you can read here. [Click here to read a selection of posts from the Blog regarding Fresh & Easy's value proposition and related issues.

Tesco's Fresh & Easy does not have at present a coherent value proposition strategy. It needs to develop one, then create an integrated marketing and merchandising (with emphasis on integrated) program to communicate it -- and communicate it in a consistent and regular manner. If Fresh & Easy can do that (which really isn't that difficult to do), it's our analysis and opinion Mr. Mason and Tesco will see a major increase in business, especially in this recessionary economy, which is going to be with us for sometime unfortunately.

By the way, Fresh & Easy better do some serious price comparisons if it plans on further communicating that its prices are 20% cheaper than the competition, as is mentioned in the interview profile in The Times with CEO Tim Mason.

Why? Because it just isn't true. Fresh & Easy's everyday prices are about 20% cheaper than some of its competitors. But the prices also are 10% and 5% cheaper than some of the grocer's other competitors. And some competitors have everyday prices as low as Fresh & Easy's. Some competitors even have lower everyday prices than Fresh & Easy stores do. If they keep making this claim they better have hard, empirical data to back it up if challenged. If not it could prove to be a very embarrassing situation if Tesco's Fresh & Easy is challenged on the claim.

Another interesting aspect of the profile in The Times is the comment by Fresh & Easy CEO Tim Mason the retailer didn't realize the United States (including the Western U.S. markets of Southern California, Metropolitan Las Vegas, Nevada and Metropolitan Phoenix, Arizona where the Fresh & Easy markets are located) was a mature market, and that therefore he attributes some of the grocery grocery chain's sluggishness to the fact. Below (in italics) is the quote:

"It has taken a bit longer to penetrate catchments around the stores than we thought it would [and] I think the reason is because this is the first mature market, well-served market, that we have opened into, so actually it's not filling a vacuum and, therefore, has to earn its place. But as we go into the second year, we would expect to see unbelievably good like-for-like growth."

To quote an average American second grader -- 'Duh.'

Before opening its first store in late October, 2007, Tesco said it conducted at least two years of extensive research on the U.S. food and grocery retailing market, focusing on the Western U.S. markets of California, Nevada and Arizona most particularly. If the fact the U.S. (and these market regions) is a mature food and grocery retailing market didn't come out on say day five (and we are being generous) of the research project, there is something seriously wrong and flawed with Tesco's extensive market research. A mere one hour conversation with say three individuals experienced in the Western U.S. food and grocery retailing market could have demonstrated conclusively that it is in fact a mature market.

But that's just the tip of the iceberg. What Tesco has failed to discover and understand is the the U.S., unlike the UK, is a multi-format regional, sub regional and local food and grocery retailing market. No where is this fact more evident than in California, and to just a slightly lessor extent in Arizona and Nevada.

There is no real national food retailing chain in America. Supermarket format chains Kroger, Supervalue and Safeway (the three largest supermarket chains in the U.S.) come closest to it. But none of the three are true national supermarket chains.

Wal-Mart, with its multi-format food, grocery and general merchandise stores -- Supercenters, Sam's Club, Neighborhood Marker supermarkets and now small-format Marketside -- is the closest (its a mass merchandiser not a supermarket chain) national chain that offers a full selection of food and groceries in the U.S. But Wal-Mart isn't even completely national, although its working on it.

On the other hand, just three chains - Tesco, Wal-Mart-owned Asda and Sainsbury's -- control nearly 60% of the food and grocery retail market in the UK. Add the Morrisons chain and what is known as "the big four" in the UK have a combined 70% -to- 74% market share in that nation.

Additionally, the remaining 30% of the market is controlled by three other chains -- the Co-op (which earlier this year acquired the Somerfield chain making it the fifth-largest grocery chain in the UK), Marks & Spencer and Waitrose. These three combined control nearly 20% of that remaining 30%. The remaining 10% is held by the German hard discount chains Aldi and Lidl, Denmark-based hard discount chain Netto and disconter Iceland. That's about it.

In the U.S., regional chains, mostly privately-held at that, are the number one and two market share leaders in most regions of the country. And these are multi-billion dollar chains, not small operations.

In California alone there are at least four multi-billion dollar chains: Stater Bros. in Southern California (about $3.6 billion annual sales), Smart & Final, also in Southern California (annual sales over $1 billion), Save Mart, based in the Central Valley (about $6.5 billion annual sales) and Sacramento-based Raley's (about $3.5 billion a year).

In addition there are numerous other chains at the $1 billion in annual sales mark, many others in the multiple hundreds of millions, and scores of multi store independents in the tens of million in annual sales.

Further, the U.S., especially the Western U.S., is packed with various format retailers that sell food and grocery products in one or more categories. There are the club stores: Costco and Sam's Club; warehouse discount franchise chains like Food-4-Less; drug chains like Long's, CVS and Rite Aid; scores of ethnic supermarkets, hundreds of natural foods stores; scores more specialty foods stores; and still other mass merchandisers like Target, which operates Super Target Wal-Mart Supercenter-like combination grocery and general merchandise mega stores, as well as selling shelf stable and perishable food and grocery items in its Target discount stores. There are others besides these.

The U.S., unlike the UK, not only is a mature market, its a regional, sub-regional and local food and grocery retailing market with players of all shapes, sizes and formats battling for a share of the consumers' stomach. Until Tesco figures that out and then formulates a strategy to position Fresh & Easy Neighborhood Market in a distinct way amongst this retail melting pot, its going to struggle far more than it needs to -- and struggle far more than its top executives are going to let on in interview profile pieces is really the case.