Wednesday, December 31, 2008
'Green' Retailing: Tesco Scores Second Overall, Number One Among Food and Drug Chains, in Ceres Coalition's Climate Change Corporate Scorecard
United Kingdom-based Tesco, which owns and operates Southern California-based Fresh & Easy Neighborhood Market USA, has scored second overall, and number one in the "Grocery & Drug" retailing category, in an analysis of how 63 of the world's largest consumer-focused and technology corporations are confronting and handling the challenges of climate change.
The survey and analysis was conducted by the group Ceres, which is a leading coalition of investors, environmental groups and other public interest organizations, which works directly with companies to address sustainability challenges such as global climate change.
The report uses a "Climate Change Governance Framework" to evaluate how 48 US companies and 15 non-US companies are addressing climate change through board of director oversight, management execution, public disclosure, GHG emissions accounting and strategic planning and performance. Some of the largest global companies in 11 consumer and technology sectors were evaluated using a 100-point scoring system based on this framework, according to Mindy S. Lubber, the president of Ceres.
Out of the 63 corporations rated by the Ceres coalition on its 100-point scale, Tesco came in second overall with a score of 78. IBM Corporation was first, just edging out Tesco with a score of 79. Computer giant Dell placed third, with a score of 77, just one point below number two Tesco.
The 63 corporations rated ranged from food-grocery and apparel retailing companies and technology businesses, to beverage companies, restaurants, and travel and leisure operations. You can view all of the 63 companies and their rankings by category here.
Northern California-based Safeway Stores, Inc. came in second in the "Grocery & Drug" retailing category, scoring 48 points.
Natural and organic foods retailer Whole Foods Market, Inc. came in third, with a rather low score of 27, followed by Kroger Co. (score of 23), drug chain Walgreen's (21), and the CVS drug chain came in last,with a score of 12.
U.S-based mega-retailer Wal-Mart did fairly well in the Ceres climate change scorecard with a numerical score of 69 on its climate change efforts ranking index. Ceres placed Wal-Mart, which is the number one global retailer and the largest seller of food and groceries in the U.S., in a different category -- "Big Box Retailers" -- which is why it isn't included with Tesco and the others in the grocery and drug retailing category. If it were, Wal-Mart would score second after Tesco, with a score of 69, compared to Tesco's 78.
The same is the case with the French global retailer Carrefour, which along with Wal-Mart and Tesco is one of the top-three food and grocery retailers in the world. Carrefour came in second in the "Big Box Retailer" category, with a score of 52. Wal-Mart is the largest retailer in the world in terms of annual sales, followed by Carrefour, and then Tesco at number three.
U.S. retail chains Costco and Target, both which are major food and grocery retailers, also were included in the "Big Box Retailer" category. Target placed fourth with a score of 37, right after third-place office supply chain Staples, while warehouse club chain Costco came in at number eight (second from last in the category), with a score of 14.
Electronics chain Best Buy was number five, after number four target, with a score of 36; the Lowe's home store chain was sixth, with a score of 17; Home Depot seventh (score of 15); then Costco; followed by the Bed, Bath & Beyond home products' chain in last (ninth) place, scoring a 10.
All of the report's detailed results are here.
The Ceres group says more than half of the 63 consumer-focused and technology companies it examined regarding climate change efforts scored below 50, which the group says demonstrates that much more effort is needed by the overall corporate sector to address climate change and global warming.
"Many companies, especially technology and pharmaceutical firms, are doing a better job of integrating climate change into their business strategies," said Mindy S. Lubber, president of Ceres, which published the report, Corporate Governance and Climate Change: Consumer and Technology Companies. "But the overall responses among these companies are very spotty, especially in the restaurant, real estate and travel & leisure sectors where climate change is barely on their radar. With or without a recession, climate change is a core business issue that all consumer and tech companies should be focused on."
The relative high scores in the Ceres of the three top-ranking global food and grocery retail chains -- Tesco, Wal-Mart and Carrefour -- is a good sign in Fresh & Easy Buzz's analysis. It shows the global "big three" are leading on the climate change issue in terms of walking the walk as well as talking the talk. Of course more needs to be done. But all three are showing strong leadership on the issue, particularly compared to corporations in other sectors.
One of the major efforts that gave Tesco its relatively high score is a program started by the retailer last year in which it is putting product "carbon footprint informational labels," which are similar to nutritional information labels, on shelf tags in its stores in the UK. The retailer also is working on putting the "carbon labels" on its store brand food and grocery items, starting with its packaged goods.
The "carbon footprint shelf tags" have information such as the amount of energy input it took to create the product and the like. The content of the shelf tags is designed to show a product's "carbon footprint," as the photograph at the top of this story shows.
Tesco CEO Terry Leahy has told the branded packaged goods companies that sell their brands to Tesco that the retailer expects them to start putting the "carbon labels" on their manufactured products in the not to distant future. Tesco is the leader in doing this in that it's the first (and only chain so far) to start labeling the food and grocery products at the point-of-purchase in its stores with the "carbon footprint" consumer information. Tesco isn't currently using the "carbon footprint shelf tags" at its Fresh & Easy stores in the Western U.S. [For more information read: Tesco PLC CEO Terry Leahy: 'We Must Go Green.']
In addition to reading how the various 63 corporations scored by category, you can read a summary of the report, as well as download the full report, here. You can also view a full profile of the food and grocery retailers in the Ceres report at these two links: Grocery & Drug Retailers and Big Box Retailers. The profiles for Tesco, Safeway Stores and WHole Foods Market are at the "Grocery & Drug" link. Those for Wal-Mart, Carrefour, Target and Costco are at the "Big Box Retailers" link.
You can learn more about Ceres (pronounced "series") here and here.
Tuesday, December 30, 2008
What did she find? And what did "geelizzie" think about what she found?
Competitor News: Smart & Final Appears Pleased With its Eight Hybrid 'Extra' Format Stores, More On the Way in 2009
Market Report: California, Nevada and Arizona
Los Angeles, California-based Smart & Final Stores LLC is expanding the number of it's new hybrid supermarket-warehouse-style "Extra" format stores, the first of which opened in August in Southern California, Fresh & Easy Buzz has learned.
Smart & Final currently operates eight "Extra" stores - six in Southern California and two in Northern California's Bay Area. The stores are nearly double the size of the retailer's non-membership warehouse stores -- 25,000 -to- 35,000 square feet, compared to about 17,000 -to-18,000 square feet for the traditional non-membership warehouse-style stores.
The "Extra" stores also carry about 4,500 more items -- including many more in single-unit sizes -- than Smart & Final's non-membership warehouse-style stores do, which cater to small businesses and restaurants, as well as individual consumers.
The "Extra" stores' target customer is the individual supermarket and grocery store consumer rather than the institutional customer.
In addition, the "Extra" format puts a greater emphasis on fresh foods, including produce (the fresh produce departments are in the 4,000 -to- 5,000 square foot range), meats, deli and prepared foods, compared to the non-membership Smart & Final warehouse-type stores.
The "Extra" Stores are designed to be more appealing to shoppers than Smart & Final's warehouse stores are. This includes enhanced interior packages and colors, more traditional style shelving, improved and more colorful in-store signage and more shopper-appealing merchandising and displays. They are a hybrid but look more like a traditional supermarket in design than they do a traditional warehouse store.
Smart & Final appears pleased enough with the performance of the current eight stores that it's planning to open a number of new "Extra" format stores in 2009 in Southern California, Northern California, and in other states in the Western USA where it operates its 242 non-membership warehouse stores in. Those states are, in addition to California: Oregon, Washington, Arizona, Nevada and Idaho. The retailer also operates stores in northern Mexico.
Look possibly for an "Extra" format test store in Arizona and one in Nevada in 2009 -- and likely additional stores in both states before next year is out. These are two states where Smart & Final operates but has yet to open any of the new format stores. Tesco's about 104 stores are located in Southern California, Southern Nevada and in the Pnoenix, Arizona Metropolitan region.
In the first half of 2009 Smart & Final will likely open as many as five new "Extra" food and grocery stores in Southern California. In addition, the retailer will likely open at least one new "Extra" store in Northern California's San Francisco Bay Area, in the city of Brentwood, and another in the Central Valley city of Stockton, which is about 35 miles from Brentwood.
We've also have learned Smart & Final is looking for additional locations for 2009 in Southern California and in Northern California, including in the Bay Area and the Sacramento region.
The retailer also has plans to convert some of its existing Smart & Final banner non-membership warehouse format stores into Extra stores in 2009. Its likely some of these stores could be in Arizona and Nevada, along with in California, in addition to the company converting some its traditional non-membership warehouse format stores in Oregon, Washington and Idaho into the new format on a case-by-case basis.
We believe Smart & Final could open as many as 25-35 new "Extra" stores, many of them conversions of existing non-membership warehouse format stores, mostly in California, but also in Arizona, Nevada and the other western states, in 2009.
Smart & Final becoming a multi-format food and grocery retailer
In addition to its five month old "Extra" format, the first store of which opened in August of this year in Southern California, Smart & Final Stores owns the Henry's Farmers Market natural and organic foods stores in Southern California and the Sun Harvest Markets natural foods stores in Texas, which it operates as a separate division from Smart & Final, with its own headquarters in San Diego, but also has integrated into the company where synergies makes sense. There are currently 36 total stores, about 26 Henry's banner stores (all located in Southern California) and about 10 Sun Harvest banner natural and organic foods markets, which are all located in Texas.
Smart & Final acquired the Henry's/Sun Harvest stores from Whole Foods Market, Inc in 2007. The stores were part of Whole Foods' acquisition of Wild Oats Markets, Inc. Wild Oats operated the Henry's and Sun Harvest stores, which were sort of a hybrid natural and specialty foods format, separate from its flagship Wild Oats' banner natural and organic foods stores.
The Henry's and Sun Harvest markets didn't fit into Whole Foods Market's strategic plans for Wild Oats, plus it wanted to raise some cash to aid in its acquisition, so the natural foods grocery chain sold the stores to Smart & Final, which itself is owned by investment firm Apollo Management LLC, which bought Smart & Final in May, 2007. Apollo/Smart & Final acquired Henry's and Sun Harvest from Whole Foods just a couple months later.
The Henry's Farmers Market and Sun Harvest stores were rather run down by the time Wild Oats sold to Whole Foods. However, since acquiring the stores from Whole Foods last year, Smart & Final has invested money in them and improved them dramatically, focusing the stores back into a more focused natural and organic foods format and vastly improving how the stores look, along with their merchandising, product selection and pricing. Smart & Final is in the processes of remodeling a number of the Henry's and Sun Harvest stores and plans to open a few new Henry's Farmers Market units in Southern California next year, according to its Web site.
At 20,000 -to- 35,000 square feet the Smart & Final "Extra" stores qualify as small-format, even though they aren't small-format for the retailer.
The size, which is about twice as big as a Tesco Fresh & Easy Neighborhood market store which average 10,000 -to- 13,000 square feet, allows them to be used in numerous settings, from suburban to urban.
Like Fresh & Easy they also offer a limited sku count, although the "Extra" stores carry more items than a Fresh & Easy store does.
Also similar to a Fresh & Easy, the "Extra" stores put an emphasis on offering everyday low prices and feature fresh foods as well as shelf-stable groceries.
Another similarity: United Kingdon-based Tesco, which owns and operates Southern California-based Fresh & Easy Neighborhood Market USA, has for many years operated as one of its numerous retail formats in the UK a banner and format named -- "Tesco Extra."
With the development of its five month old Smart & Final "Extra" format and the retailer's new plans to grow the number of stores from the eight it now operates in California into many more -- not just in California but elsewhere in the west where it operates stores -- including Nevada and Arizona where in addition to Southern California Tesco's Fresh & Easy has its 104 combination fresh food and grocery markets -- Smart & Final is adding yet another competitive food and grocery retailing format, element and set of stores into the already super-competitive Western USA food and grocery retailing industry mix.
Just when the pundits say the market has reached maturity, more new formats and stores come along.
Despite the economic recession, which we think will get worse before it gets better and which we believe will last for all of next year, there will continue to be new store -- and format -- development in the Western U.S., albeit at a much slower pace than in 2007 and 2008, in our analysis.
This increased competition from existing and new format players like Smart & Final's "Extra," combined with the economic recession, could result in some shaking-out among the retail players in California, Nevada and Arizona, leading to some store closings as well as diminished sales and incomes for those food and grocery retailers who don't adapt, or aren't sufficiently capitalized to weather the storm.
Monday, December 29, 2008
Competor News: Winco Foods to Expand in California and Nevada in 2009; Put Aggressive Focus on Central Valley, Northern California and Northern Nevada
Earlier this year, Fresh & Easy Buzz reported that Idaho-based, employee-owned discount supermarket chain Winco Foods had commercial real estate agents who specialize in retail food store locations scouting the Western United States, including in California and Nevada, which are two of the three markets where Tesco has its Fresh & Easy stores (the third is Arizona), for potential locations for the chain to open new stores at.
The Western USA-focused supermarket chain, which bills itself as "the supermarket low price leader," has decided on a few of those locations, which include sites in California and Nevada, and will start building new discount supermarkets at the locations next year, Fresh & Easy Buzz has learned.
Additionally, Winco is currently searching aggressively for potential new store sites in Central (Valley) and Northern California, and Northern Nevada, three regions it plans to make a major push in next year. The retailer, which currently has a handful of stores in the Central Valley and Northern California, is looking for new store sites in the Fresno area, in the Northern San Joaquin Valley (Modesto-Stockton region), in Metro Sacramento, and in the San Francisco Bay Area.
Winco has a huge 700,000 square foot distribution center in Modesto, California, one of three it operates in the west, that serves its California and Nevada stores. The facility has considerable room to support many more new supermarkets. It's other two distribution centers are located in Oregon.
Winco, which currently operates 64 of its mega-discount supermarkets in five western states --Idaho, Washington, Oregon, Nevada and California -- also is looking for new store sites in Southern California and Southern Nevada (where it doesn't have any stores opened to date), although not as aggressively as it is looking in the Central Valley, Northern California and Northern Nevada. Winco currently has 27 of its 64 stores located in California. The rest are split between Idaho, Oregon, Washington and Northern Nevada, where it currently operates just one supermarket in Reno. All of the Winco stores stay open 24 hours a day.
Inside a Winco supermarket above. The design is utilitarian and no frills. The focus on low prices. The supermarkets do have in-store departments like fresh bakery and deli though, as well as other special features, such as huge bulk foods departments.
The 64 Winco stores, which operate on a deep-discount pricing model and are fairly no frills, are extremely high volume units. For example, the chain had annual gross sales of $3.5 billion (with about 56-57 stores) in its last fiscal year. Mike Read, Winco's vice president of legal and public affairs, says the retailer is estimating it will have sales of about $4 billion in its current fiscal year, which ends in March, 2009. That's lots of gross sales for 64 supermarkets, even though they average about 95,000 square feet each in size.
The Winco Foods' stores in Northern California's Central Valley are performing particularly well because of the deep-discount, low price format.
Average incomes are lower in the Central Valley than in the Bay Area and Southern California, for example.
Additionally, the region, from Bakersfield south to Sacramento north, has been among the hardest hit parts of the state by the housing foreclosure crisis and resulting unemployment.
For example, unemployment in the Fresno region is at a bit over 10%; its 13% in nearby Merced County; 12.3% in Stanislaus County, over 11% in San Joaquin County; and about 10% in the Sacramento Metro region, according to the most recent figures released by the California Employment Development Department. By contrast, overall unemployment in California is at 8.4% , the third highest in the nation after number one Michigan (at 13%) and number two Hawaii, as of November, 2008. Notice how Merced and Stanislaus Counties have just as high (Merced) and near as high (Stanislaus) of an unemployment rate as does Michigan, for example, demonstrating the poor economy in the valley.
As a result of the poor economy in the region in general but especially so in this serious economic recession, consumers are flocking to deep discount supermarkets like Winco and Wal-Mart's Supercenters, where they can buy more food and groceries for their dollar. Wal-Mart has few Supercenters in most parts of the Central Valley and Northern California though, something it is working on changing, so Winco is also benefiting from the lack of competition from Wal-Mart in numerous parts of the Central Valley and Northern California where the retailer has few or no stores.
Winco could open as many as five -to- six of its average 95,000 square foot mega-supermarkets in the Central Valley and Northern California (including Northern Nevada) in 2009, Fresh & Easy Buzz has learned. That's a total of about 550,000 new square feet of food and grocery retailing space in the regions. To put that in perspective, Tesco's Fresh & Easy combination grocery and fresh foods markets average about 10,000 -to- 13,000 square feet. It would take about 50 Fresh & Easy stores (using 11,000 square feet as an average store size) to equal that same amount of retail square footage.
Fresh & Easy - Central Valley and Northern California
Although Tesco's Fresh & Easy has postponed opening its stores in Northern California, the grocery chain has nearly 50 of its small-format, convenience-oriented combination grocery and fresh foods everyday low-priced format markets in the pipeline (in various stages of development from near-completed to recently acquired sites) in Northern California.
The grocery chain also recently opened the first two of a thus far planned five Fresh & Easy markets in Bakersfield, in the south Central Valley. It has eight stores planned for the Fresno region thus far, along with two in Modesto -- all valley regions -- as well as 40-plus stores in the Sacramento/Vacaville market region and in the San Francisco Bay Area combined.
With Winco making its aggressive push in the Central Valley and Northern California, this adds an additional layer of competitive thrust to what is already a very competitive market that Fresh & Easy will be entering, at least we assume with some stores opening in 2009.
Winco comes in among the lowest-priced of all food and grocery retailers in California and the others Western U.S. states where it has its stores. And like Tesco's Fresh & Easy, it is a non-union operation, unlike Safeway, Kroger-owned Ralph's and pretty much all of the other major supermarket chains in California and Nevada are. Wal-Mart, Target and Trader Joe's are non-union as well.
The Idaho-based supermarket chain, which has 12,000 employees who all own shares in the company, could become a major sub-regional force in California and Nevada over the next two or three years as it adds a number of its new mega-discount supermarkets to its store count in the two states. According to its sales and income growth, it's currently doing well in the recession rather than struggling, which is why its planning aggressive new store growth for 2009.
Much of the emphasis in our coverage, writing and analysis regarding the "food desert" issue is do to the fact Tesco's Fresh & Easy Neighborhood Market has said since it set up shop over two years ago in Southern California that one of its key strategies with the small-format, combination grocery and fresh foods convenience-oriented chain was to locate stores in inner city "food desert" neighborhoods historically underserved by supermarkets.
The "food desert" issue also is a big one in the United States, which also is why we've written about it often this year in Fresh & Easy Buzz. Cities throughout the U.S. are searching for retailers to open and operate food and grocery stores that offer decent selections of groceries and fresh foods at affordable prices in their respective downtown districts and lower income inner city neighborhoods.
Additionally, community and neighborhood groups in many of these same cities have launched programs, often with federal and state government assistance, that attempt to create incentives to lure grocers downtown and into the inner city neighborhoods, where residents often have to drive or take public transportation miles away in order to shop at a full-service, reasonably-priced food store rather than at a high-priced neighborhood mini-mart stores.
In terms of Tesco Fresh & Easy's stated strategy to open a number of its its 10,000 -to- 13,000 square foot fresh food and grocery markets in "food desert" neighborhoods in Southern California, Metropolitan Las Vegas, Nevada and in the Phoenix, Arizona Metro region, the three Western U.S. markets the grocery chain currently has its stores in, the results to date have been less than...well, "strategic."
Out of the current about 104 Fresh & Easy markets Tesco operates in the three market regions, only two of the stores are located in "food desert" neighborhoods. Both of those stores are in Southern California -- one in Compton (Los Angeles) and the other in Los Angeles' Eagle Rock neighborhood, which happens to be a neighborhood undergoing fairly rapid gentrification.
None of the about 55 Fresh & Easy stores in the Metro Las Vegas and Phoenix markets are in low-income, inner city neighborhoods previously underserved by supermarkets. Most of the Arizona stores are in the Phoenix suburbs, in fact.
In terms of Las Vegas, Tesco's Fresh & Easy Neighborhood Market had an opportunity, including an offering of an economic incentive package by the city of Las Vegas, in late 2007 and in early 2008 to locate a Fresh & Easy market in a low-income West Las Vegas neighborhood underserved by supermarkets. However, the grocery chain wasn't interested in the location. A Southern California-based independent supermarket chain, Buy-Low markets, went into the location and recently opened a supermarket in the "food desert" neighborhood in West Vegas.
In terms of new stores in development, Tesco has a Fresh & Easy market being built in a low-income neighborhood in south Los Angeles that is underserved by food stores offering groceries and fresh foods at reasonable prices. That store is scheduled to open sometime in 2009. [Read our July, 2008 report here and an additional story here.]
Additionally, the grocery and fresh foods chain plans to build a Fresh & Easy market near downtown Tempe, Arizona. Downtown Tempe has been without a supermarket for many years. And although the proposed new Fresh & Easy store isn't in the downtown core, it is just about one mile away, making it at least a semi-"food desert" location. [Read our story here: Arizona Region Market Report: A Fresh & Easy Buzz Flashback - Tesco to Locate New Fresh & Easy One Mile Outside Downtown 'Food Desert' Tempe, Arizona.]
In Northern California, where Fresh & Easy was to begin opening its first stores in the San Francisco Bay Area and Sacramento/Vacaville Metropolitan regions early in 2009 but has postponed doing so, the grocery chain has two Fresh & Easy markets slated for "food desert" neighborhoods and two units slated for what we would describe as "semi food desert neighborhoods."
One of the Fresh & Easy stores is in San Francisco's Bayview Hunter Point neighborhood, a low-income area of the city that's been without a supermarket (except for a Kroger Co.-owned FoodsCo warehouse supermarket a couple miles away) for many years, and the other in Sacramento's Oak Park neighborhood, which also is underserved. The rapidly gentrifying Sacramento neighborhood at present has only a Food Source warehouse market, owned by local supermarket chain Raley's, located on the edge of the neighborhood.
The two Fresh & Easy Northern California locations we describe as being located in "semi-food desert" neighborhoods include one near downtown Oakland and another in the small, low to middle income rural Northern California city of Oroville.
The proposed Oakland store (one of two thus far proposed in the city), is in a "semi-food desert" neighborhood, although there are Trader Joe's, Safeway and Whole Foods Market stores nearby.
Fresh & Easy was negotiating to open a third store in west Oakland, in a low-income "food desert" neighborhood near downtown. However, the retailer pulled out of those negotiations saying the location and vacant building it was considering putting the store in were unworkable. [Read our May, 2008 story here: Food Deserts: Tesco's Fresh & Easy Neighborhood Market Won't Create A Retail Grocery Store Oasis in This Particular Oakland, California Food Desert.]
The proposed store for the city of Oroville, isn't particularly in a "food desert" neighborhood. However, since the community as a whole is underserved by supermarkets because of its rural setting and lower to middle income status, we qualify the proposed Oroville unit as a "food desert" location for Tesco's Fresh & Easy.
Lastly, as we've reported, Fresh & Easy Neigborhood Market plans to open two stores thus far in the Northern San Joaquin Valley City of Modesto in Northern California.
Both of the proposed Modesto stores are in neighborhoods (in the vacant buildings) where supermarkets have closed in recent years. There are supermarkets within a short distance of residents in both Modesto neighborhoods. However, because the neighborhoods are currently without supermarkets directly in them because of the closings by the former retailers, we score these as two additional "food desert," or at least "semi-food desert," proposed Fresh & Easy store locations for Northern California, for purposes of our analysis [Read about proposed Modesto store one here and Modesto store two here.]
Fresh & Easy's 'food desert' scorecard
Fresh & Easy Neighborhood Market's "food desert" store location scorecard then looks something like this to date:
>Total current number of stores in Southern California, Metro Las Vegas, Nevada and the Phoenix Metropolitan region equals about 104 units. Total number of those stores that are located in "food desert" neighborhoods -- equals two.
>Total number of new stores in development in "food desert" neighborhoods in these three market regions equals two; one store in south Los Angeles and the proposed Fresh & Easy market to be located on the edge of downtown Tempe, Arizona.
>Total number of stores proposed thus far for Northern California equals about 48 (Tesco's Fresh & Easy has confirmed 37 of those stores, we've discovered an additional 11 in our reporting).
>Total number of these 48 Fresh & Easy markets that are to be located in "food desert" neighborhoods or communities equals 3 units; the Bayview Hunters-Point neighborhood Fresh & Easy in San Francisco, the market in Sacramento's Oak Park neighborhood, and the proposed Fresh & Easy store in the rural city of Oroville.
>Total number of the 48 proposed to date Northern California Fresh & Easy stores to be located in "semi-food desert" neighborhoods or communities equals three; the one Oakland store not far from the Trader Joe's, Safeway and Whole Foods units, and the two Modesto markets. (we are being liberal in scoring these three stores in the "food desert" column for Fresh & Easy.)
On a percentage basis, even if you don't count the "semi-food desert locations," Fresh & Easy appears to be doing better with its proposed Northern California locations -- three out of 48 or six out of 48 if you count the "semi-food desert locations" -- than it has done to date in its three existing markets. OF course, keep in mind none of the Northern California stores have yet to even open.
This is odd in that from an economic and reality-based standpoint, Metropolitan Los Angeles, the city of Phoenix, Arizona, and Metro Las Vegas have as many or more opportunities to locate stores in inner-city neighborhoods (particularly in Los Angeles) than does Northern California.
Why the analysis and 'food desert' scorecard?
We only bring up this analysis and create the scorecard because locating its small-format, combination grocery and fresh foods markets in "food desert" neighborhoods and communities is a stated, strategic objective of Tesco's Fresh & Easy.
Additionally, It's a policy the grocery chain has used to generate much media publicity during the run-up of the opening of its first stores in November, 2007, for example.
Further, It's also something the retailer has used for immediate publicity whenever it has announced plans to open Fresh & Easy stores in underserved neighborhoods, such as on two occasions this year.
For example, earlier this year when it announced plans to built the Fresh & Easy stores in the south Los Angeles location and in Bayview-Hunters Point in San Francisco, the grocery chain held big media events that featured company CEO Tim Mason and city officials cutting ribbons (including Liberal San Francisco Mayor Gavin Newsom, who is strongly pro-union grocery chains, of which Fresh & Easy isn't), along with encouraging the local print and broadcast media to attend and cover the special events in both neighborhoods.
However, based on our scorecard, it appears to date that Tesco Fresh & Easy Neighborhood Market's "food desert" strategy isn't one being followed by the retailer in any real or meaningful manner. Having only two out of about 104 Fresh & Easy markets in neighborhoods underserved by supermarkets that offer fresh foods and groceries at affordable prices doesn't a key element to a retailer's overall store location strategy make, after all.
In addition, having only two (the store in south Los Angeles and the store on the edge of downtown Tempe, Arizona) of its numerous stores in development in Southern California, Nevada and Arizona located in "food desert" neighborhoods doesn't demonstrate that the grocery chain, as it has said publicly in defending its lack of stores in "food desert" neighborhoods, that it initially planned to have just a couple Fresh & Easy stores in underserved neighborhoods, then it would add a number of additional stores in such neighborhoods as time went on.
For example, Even when the two stores (south L.A. and Tempe, Arizona) open, along with the "food desert" neighborhood stores in Northern California, which is a market currently up in the air for the grocery chain anyway, it won't increase the percentage of units it operates in underserved neighborhoods. Actually, if you do the math, that percentage will actually decrease based on the number of new stores set to open in the coming year, compared to the number of those new stores, combined with existing stores, located in underserved neighborhoods.
Fresh & Easy Neighborhood Market spokesperson Brendan Wonacott recently told a number of Southern California newspapers, including the San Diego Union, that the grocery chain is looking to open about one new store every two weeks in 2009, down considerably from the number of new stores its opened this year, which has averaged about one new store every two to three days. If that is the schedule, that would mean opening only 26 new Fresh & Easy markets in 2009, which is less than half of the new stores in the pipeline for Northern California alone, not to mention the numerous new stores in development in Southern California, Arizona and Nevada.
As a result, this schedule would give the retailer about 130 stores at the end of 2009. That's compared to its earlier statements that it planned to have about 300 Fresh & Easy markets operating by the end of next year. If say 6-8 in total (a fair estimate) of these 130 stores are located in "food desert" neighborhoods, for example, that would mean only about 5% of the total 2009 store count would consist of stores located in underserved neighborhoods.
That doesn't seem a significant number for a chain touting such a policy as part of its strategic store location program. The percentage wouldn't be all that bad for a grocery chain that said nothing about locating stores in such low-income, inner-city neighborhoods as part of its stated policy but that's not the case regarding Tesco's Fresh & Easy, which has said all along it is committed to doing so as policy. It's hard to put the "food desert" policy genie back in the bottle when a retailer has used it successfully to gain free publicity.
WIC Vouchers, poor mothers and the 'food desert' issue
Based on our research and sources, it's our analysis that, with a few exceptions, locating its fresh food and grocery markets in "food desert" neighborhoods really is no longer a part of Fresh & Easy Neighborhood Market's store location strategy. Reasonable people could argue that it never was, if you look at the fact that to date only two of its about 104 markets are in such neighborhoods. We give the grocer the benefit of the doubt that it was though, despite the empirical evidence to the contrary.
One of the reasons we believe the "food desert" strategy is no longer something Fresh & Easy is incorporating in any meaningful way is -- besides the observable evidence that suggests it is so -- because Tesco's Fresh & Easy Neighborhood Market does not even accept U.S. federal government-issued WIC Vouchers (Woman, Infant, Children's Program) from the poorest of poor mothers, who are the only people who receive the couchers, in its stores.
The vouchers, which are accepted by close to every supermarket and grocery store in the U.S., including many drug and convenience stores, are given only to mothers who are extremely poor, and can be used only by these mothers to purchase specific items for their babies and toddlers. These specific items include infant formula, whole milk, whole grain cereals, fruit juice and selected fresh fruits and vegetables.
It is in these very low-income, inner-city "food desert" neighborhoods where the majority of poor mothers who receive WIC program assistance and vouchers live, although many live in other neighborhoods where Fresh & Easy markets are located as well.
So follow the logic: Tesco's Fresh & Easy says (and generates publicity from) one of its key strategic store location strategies is to locate stores in low-income, inner city neighborhoods underserved by supermarkets. Yet, never mind it's only opened two of its about 104 Fresh & Easy markets in these "food desert" neighborhoods to date, the fact is the grocery chain doesn't even accept WIC Vouchers in its stores; the very vouchers that enable the poorest of the poor mothers to be able to buy essential and healthy items like infant formula for their babies, and fresh produce and whole grain cereal for their toddlers.
The logic of this practice is non-existent. To take it a step further, suppose Fresh & Easy opened dozens of stores in low-income, inner city "food desert" neighborhoods in 2009. Even if it did, the poorest of the poor mothers in those neighborhoods will still have to take the bus to the nearest competitor's supermarket, likely outside the neighborhood, in order to buy infant formula, fruit juice, whole milk, cereals and fresh fruits and vegetables for their babies and toddlers because Fresh & Easy Neighborhood Markets's corporate policy does not allow the stores to accept the WIC vouchers.
Or use a present day example: Tesco's Fresh & Easy opened a store in Los Angeles' primarily minority, low-income Compton neighborhood earlier this year. Its only one of two supermarkets for the entire 100,000 population community.
Compton has one of the highest percentages of poor single mothers in California; in the entire U.S. for that matter. Thousands of poor mothers in Compton receive WIC Vouchers from the government. For most if not all of them its the only way they could and would buy nutritious foods and beverages for their children. But, the Compton Fresh & Easy store, like all of the other Fresh & Easy markets, doesn't accept WIC Vouchers. Therefore these poor mothers can't make use of one of the only two stores in the community where they can purchase nutritious foods for their babies and toddlers.
On top of this inconsistancy, is the fact Fresh & Easy is missing out on an important source of sales by not accepting the WIC Vouchers. Ironically, the items poor mothers are allowed to purchase with the vouchers are in most cases fairly high-ring products -- infant formula, fresh, whole milk by the gallon, fruit juice, whole grain cereals -- which are just the type of items Fresh & Easy stores need to increase sales of. The federal government pays retailers 100% of the value of the WIC Voucher; it's "free money" to the grocer -- which is one reason nearly 100% of food stores not only welcome the use of the vouchers but incourage it as well.
Lastly, we believe Fresh & Easy's not accepting the WIC Vouchers is an ethical and moral issue. Can a food retailer that claims to be an ethical grocer really be one if they refuse to accept WIC vouchers from poor mothers who in most cases are only able to provide nutritious foods to their kids because they get the vouchers from the government? We think not -- that's it's rather hard to square that dilemma and honestly claim to be an ethical retailer while refusing to accept the vouchers. Imagine the flack Wal-Mart would get if it refused to accept the WIC Vouchers from poor mothers, for example. There is no possibillity of course that the mega-retailer would do so since it loves the added revenue accepting the vouchers brings its stores.
In essense, by its policy Tesco's Fresh & Easy Neighborhood Market is saying to the poorest of the poor (and mothers at that), 'no thanks, we don't want your business in our stores.'
We've talked to Fresh & Easy store employees who on a daily basis have to refuse the WIC vouchers from poor mothers. Every single one of these store-level employees tells us they wish the company would accept them, both because they believe doing so is the ethically correct thing for the grocery chain to do, but also because they scratch their collective heads wondering why the fledgling retailer is willing to turn down added sales just because it doesn't want its store-level workers to process paper.
Fresh & Easy also doesn't accept paper checks or manufacturer's cents off coupons. It does take food stamps because they are distributed in the form of a plastic debit card. Oddly enough though, the grocery chain does accept plenty of its own, self-generated $5-off and $6-off paper store discount coupons. That sort of kills the store-level, labor saving "no paper handling" argument against not taking WIC vouchers, we believe.
Tesco's Fresh & Easy Neighborhood Market has the right to open as many or as few of its small-format, combination grocery and fresh food markets in "food desert" neighborhoods as it desires. After all, its competitors' aren't exactly rushing to open stores in the low-income, inner city neighborhoods in California, Nevada and Arizona, although that is changing as other food retailers are beginning to discover opportunities in these neighborhoods and are locating more stores in them.
However, neither are Fresh & Easy's competitors saying doing so is a key part of their respective new store location strategies and corporate policies, and using it as a publicity angle to generate media ink and impressions, with the goal of that positive press being to positively influence consumers and potential customers as part of the grocery chain's brand building efforts and positioning as a socially responsible grocery chain, which is what Tesco's Fresh & Easy has done and is doing, despite having only two stores located in real "food desert" neighborhoods.
WIC Vouchers: Time for a policy change at Fresh & Easy
On the issue of not accepting WIC Vouchers from the poorest of poor mothers, we suggest Tesco's Fresh & Easy should change its policy beginning with the new year and accept WIC Vouchers. Not only is excepting the vouchers from poor mothers in the stores the ethically correct thing to do, it also makes pure economic sense from a sales perspective. We've called for the grocery chain to do so a number of times this year (click here for those posts) -- and we do so again in this piece today.
It's also is the right thing to do by store employees, who shouldn't be in the position of having to tell mothers they can't purchase infant formula and other nutritious products for their children using the government provided vouchers in a Fresh & Easy store, particularly during the current severe economic recession we are in which finds an increasing number of mothers (many for the very first time in their lives) having to use the WIC Vouchers in order to feed their babies and toddlers.
In fact, we are astounded that groups like the Los Angeles-based Alliance For Healthy and Responsible Grocery Stores -- which has been trying for well over a year to get Tesco's Fresh & Easy Neighborhood Market to sign an agreement with the group, saying it will locate a set number of Fresh & Easy markets in "food desert" communities -- hasn't to date said a word about the fact Fresh & Easy does not accept WIC Vouchers from poor mothers in any of its stores. Perhaps the group doesn't know this to be the case, or it has failed to make the connection between not accepting the vouchers and the "food desert" issue, which if that is the case is a considerable oversight. [Click here to read a letter the group sent to Tesco on the "food desert" issue, along with other related information. There's not a word in all of their literature about the WIC vouchers that we can find.]
For example, here is an opinion piece two leaders of the Alliance For Healthy and Responsible Grocery Stores wrote about Tesco's Fresh & Easy and the "food desert" issue in November of last year in the Los Angeles Times. There's much about wanting the grocery chain to open stores in underserved neighborhoods in Southern California, particularly in Los Angeles, but not a word about the stores' not accepting WIC vouchers, which it would seem would be an issue important to the group since the point of locating stores in low-income, inner city neighborhoods is to make available more healthy and affordable food options to residents, including the poorest of poor mothers who can only provide infant formula and healthy and nutritious foods to their children by using the government-provided vouchers. What about the poor mothers in communities where the current 100-plus Fresh & Easy markets are located, for example, including the two stores in the underserved neighborhoods in Los Angeles?
We are told by sources that the group plans to renew its call early in 2009 for Tesco's Fresh & Easy to locate more of its markets in "food desert" neighborhoods. If it does so, we will be perplexed if the alliance doesn't also call for Fresh & Easy to accept WIC vouchers for poor mothers.
After all, locating new stores is a complex process, particualrly for Fresh & Easy since it has postponed the number of new stores it plans to open next year. The success of Tesco's Western USA fresh foods and grocery retailing venture also is up for grabs at present.
However, changing its policy beginning in January, 2009 to one of accepting the WIC vouchers in all of its stores is something Tesco's Fresh & Easy can do immediatly. And it is something that not only would offer poor mothers the same shopping opportunity at Fresh & Easy stores that they have at all of its competitors, but it would also give Tesco's Fresh & Easy a potential new source of revenue. That's a win-win no matter how you look at it. Plus, it's the right thing for Tesco's Fresh & Easy to do.
Saturday, December 27, 2008
Beginning yesterday, Tesco reduced prices on durable goods items in its UK stores by 70% in what the retailer and UK observers describe as the most-aggressive post-Christmas holiday promotion in history.
Tesco also is offering significant discounts on some food, grocery and household cleaning products items in its UK stores. However, the thrust of the mega-discounting sale is on soft goods, hard goods, consumer electronics and other similar category items.
It's all about salvaging Christmas holiday sales for Tesco and the other UK broadline retailers, as it is for similar retailers in the U.S. that rely on sales of durable goods, who also are offering mega-sales this weekend, including American Department stores like Macy's, Bloomingdales and others, which this weekend are offering up to 70% off on certain merchandise, just like Tesco and the others are doing in the UK.
And like the U.S., the UK's economy is in tatters, resulting in a poor Christmas holiday sales season across the pound as well as in the U.S. The discounting is needed to move the goods off the shelves and at least put some cash, even at lower margins, in the store tills.
Read about the biggest sale in history at Tesco, as well as similar sales at stores owned by its competitors in the UK, at the links below:
[Bloomberg: Next, Marks Join Tesco, Debenhams in Post-Christmas Price Cuts... Wales Online.UK: Shoppers' early start for Boxing Day bargains... Guardian.co.uk: If you thought the Christmas price cuts were good... Times Online-UK: Where to find the best bargains in the sales... Bloomberg: Tesco Plans 100 Million-Pound Sale to Lure Shoppers... Bloomberg: UK Retailers Offer Discounts to Reverse Sales Slump... ITV.com-UK: High street sales frenzy begins.] [And, Nine out of 10 UK consumers say they will cut back spending on everything in 2009, including food and grocery purchases.]
Tuesday, December 23, 2008
A Retailer's Christmas Story: Giant Wal-Mart Pulls Trademark Application for 'Marketside' Name in Canada After Owen Sound, Canada Independent Objects
Certainly not Paul Thomas and Karin van der Heyden Thomas, who operate a food and grocery store and catering operation called "Marketside Food Shop and Cafe" in Owen Sound, Canada, and have been doing so for 20 years.
The independent food store owners heard last January (2007) that Wal-Mart had submitted a trademark application in Canada under the name Marketside, its new small-format combination fresh food and grocery markets, the first four of which opened in October of this year in the Phoenix, Arizona Metropolitan region in the U.S.
Like Wal-Mart's Marketside stores, the Canadian couple's "Marketside Food Shop and Cafe" offers in-store prepared foods, including hearth-baked bread, and other fresh food and grocery items.
The two Marketside's -- the independent Owen Sound, Canada store, and Wal-Mart's Marketside division -- even have similar Web site URL's. This is the Canadian independent Marketside's Web site URL: http://www.marketside.ca.the/ Wal-Mart Stores, Inc.'s Marketside site is nearly identical and is at the URL here: http://www.marketside.com/.
Of course the similarities between the two stop about there -- from there it's all basically David vs. Goliath.
But there was no battle.
Earlier this year the Owen Sound independent food retailers contacted Toronto-based intellectual property lawyer Megan Langley Grainger after they heard about Wal-Mart's registering the Marketside trademark for Canada. The lawyer warned the couple that it could be costly to fight Wal-Mart, particularly if doing so meant going into litigation. However she offered to draft an initial letter about the issue to Wal-Mart's corporate counsel for a reasonable legal fee and then go from there.
In just a month's worth of letter exchanges between lawyer Megan Langley Grainger and Wal-Mart corporate attorneys, the issue was settled -- Wal-Mart withdrew its trademark application in Canada for the Marketside name and wished the owners of the Owen Sound "Marketside Food Shop and Cafe" well in their continued, and for now exclusive, use of the Marketside name.
Thomas and van der Heyden Thomas just received copies of a Dec. 5, 2008 letter from Wal-Mart lawyer Gervas W. Wall to Canadian trademark officials withdrawing the company's Marketside application.
There will be no Wal-Mart-owned and operated "Marketside" banner stores in Canada -- at least under that name. It doesn't mean Wal-Mart isn't still looking into opening some of its small-format, combination fresh food and grocery stores in Canada. It just would do so minus using the Marketside name.
The independent food retailing couple says they were prepared to consider a financial settlement that would have allowed Wal-Mart to take over the name because they didn't have the resources to fight a long court battle if it came to that. But it didn't.
In addition to operated the food store and catering business, the couple produces and markets a line of flat bread products and spreads under the Marketside brand. The products are sold in their store and marketed to other Canadian retailers. Perhaps they should pitch Wal-Mart to sell the branded goods in its four Marketside stores (and soon to be fifth) in Arizona.
Meanwhile, a Wal-Mart Stores, Inc. source tells Fresh & Easy Buzz that the retailer has no near-term plans to open a different named version of its Marketside stores in Canada, where Wal-Mart is becoming a major player in food and grocery retailing with its numerous Supercenters. The source also said doing so hasn't been ruled out either.
As we've reported, Wal-Mart plans to open 10 Marketside stores, five in Arizona and five more, we think four (we've already reported on two going in the San Diego region) in Southern California and one in Reno, Nevada,
We know Wal-Mart has watched the development of Canada's Sobeys chain with its small-format "Urban Fresh" markets, which are similar to the Marketside format. Actually, since Sobeys' "Urban Fresh" existed long before Wal-Mart Marketside, it's more fair to say the Marketside stores are similar to Sobeys' "Urban Fresh."
Sobey's uses its small-format "Urban Fresh" as part of its multi-format and multi-banner food and grocery retailing strategy in Canada, unlike what Tesco is doing in the U.S. by using small-format Fresh & Easy as a single-play/single-format strategy. Sobeys operates 1,300 stores of varied formats and sizes in Canada under numerous different banners.
As we've written about previously, that's Wal-Mart's strategy with Marketside -- it is just one part of a multi-format food and grocery retailing strategy that includes Supercenters, Wal-Mart Neighborhood Market supermarkets, Sam's Club and now Marketside. Wal-Mart also is working on at least two new food retailing formats, as we've reported previously -- one is a medium-sized (about 25,000 -to- 30,000 square foot) Hispanic 2.0 format (a hybrid Hispanic and Anglo market) and the other is a scaled down version of a Supercenter, sort of a discount store with a food and grocery focus.
Wal-Mart's agreeing so readily to pulling its trademark application for Marketside could be taken in a number of ways. For example, (1) it doesn't want to get the negative publicity that would surround a court battle with an independent food store operator? (2) Marketside isn't that big a brand name to the retailer. Therefore no "big deal" in dropping the trademark application. (3) Its got an even hotter name for its Canadian version of Marketside in the works?
Our answer: it's a bit of all of the above. Most significant though is Wal-Mart did not want a legal fight (and all the bad publicity that would come from it) over the Marketside name in Canada, where it is a major player with its Supercenters and is building and applying for permits to build even more of the mega-stores. After all, the retailer doesn't even know if it will build any small-format Marketside-like stores in Canada. Therefore it essentially decided the cost of trying to push the trademark through was far greater than the benefit.
And, if Wal-Mart's Marketside ends up being a big hit in the U.S., and the retailer wants to start opening stores under the same banner in Canada, it can always approach the owners of the Owen Sound "Marketside Food Store and Cafe" with a nice, healthy financial offer to by the rights to the name from them -- and perhaps even toss in a global distribution deal for the couples Marketside brand flatbreads and spreads.
Wal-Mart's acting like the "Gentle Goliath" to the Canadian couple's determined but reasonable David almost qualifies as a Christmas story these two days before the traditional religious holiday, which has morphed in modern times into a retail holiday as well, and probably even more so.
This decision, along with the settling of the 63 class action lawsuits we reported on earlier today, and the recent donations of millions of dollars in cash and hundreds of thousands of pounds of food to groups feeding the hungry, makes us wonder if CEO Lee Scott and company at Wal-Mart headquarters in Bentonville, Arkansas, aren't celebrating a more charitable, traditional Christmas this year -- a year in which retail sales are among the worse in recent history -- but also a year in which Wal-Mart is doing better than any other retailer in the U.S. is dping during this deep economic recession.
In the spirit of the behaviors and return to tradition, we end with the words (and music) to what is widely considered to be the most traditional and popular Christmas carol -- Silent Night!:
The origin of the Christmas carol we know as Silent Night was a poem that was written in 1816 by an Austrian priest named Joseph Mohr. On Christmas Eve in 1818 in the small alpine village called Oberndorf it is reputed that the organ at St. Nicholas Church had broken. Joseph Mohr gave the poem of Silent Night (Stille Nacht) to his friend Franz Xavier Gruber and the melody for Silent Night was composed with this in mind. The music to Silent Night was therefore intended for a guitar and the simple score was finished in time for Midnight Mass. Silent Night is the most famous Christmas carol of all time. It's also considered the most traditional of Christmas Carols, and is even enjoyed among non-Christians.
Silent night, holy night
All is calm, all is bright
Round yon Virgin Mother and Child
Holy Infant so tender and mild
Sleep in heavenly peace
Sleep in heavenly peace
Silent night, holy night!
Shepherds quake at the sight
Glories stream from heaven afar
Heavenly hosts sing Alleluia!
Christ, the Saviour is born
Christ, the Saviour is born
Silent night, holy night
Son of God, love's pure light
Radiant beams from Thy holy face
With the dawn of redeeming grace
Jesus, Lord, at Thy birth
Jesus, Lord, at Thy birth "
Click here to listen to Silent Night!
Competitor News: Retiring Wal-Mart CEO Lee Scott's $640 Million Christmas Present to Incoming CEO Mike Duke - 63 Labor-Related Lawsuits Are Resolved
Read the coverage at the links below:
New York Times: Wal-Mart Settles 63 Lawsuits Over Wages... CNN/Money: Wal-Mart to settle wage suits...Bloomberg: Wal-Mart Will Pay Up to $640 Million in Settlement.
Others: Reuters - The Associated Press - BBC News - MarketWatch.
As Fresh & Easy Buzz reported on November 21, 2008 [Breaking News: Wal-Mart Stores, Inc. Names New CEO to Replace Lee Scott; USA Chief Castro-Wright Elevated to Vice Chairman Effective Immediatly] current Wal-Mart CEO Lee Scott will step-down as CEO at the end of January, 2009, and turn over the mantle of Sam Walton to current Wal-Mart head of global operations Mike Duke.
The class action lawsuit situation has been hanging over CEO Lee Scott's and Wal-Mart's heads for a number of years now -- millions in lawyer's fees and much bad publicity. Therefore it appears Lee Scott has decided to give incoming CEO Mike Duke a nice Christmas present just two days before Christmas Day -- the resolution to the 63 class action lawsuits.
When you think about it, a little over half a billion dollars is a good deal for Duke -- and for Wal-Mart. After all, the costs of inheriting the legal mess and dealing with it would be far higher than that in total. For Mike Duke, one could even say the timing of the resolution is, like the MasterCard credit card commercial says -- Priceless.
Monday, December 22, 2008
Drug Chain Walgreens to Slow New Store Growth; Despite Tesco Fresh & Easy's Recent Announcement to Do Similar, We Suggest An Analogy is Misplaced
The U.S. national drug chain, which is headquartered in Deerfield, Illinois, had earnings of $408 million, or 41 cents per share, in the three months ended Nov. 30. That total fell short of analyst expectations, and compares with $456 million, or 46 cents per share, a year ago. Revenue grew 7 percent to $14.95 billion. The expectations of the analysts (the consensus) was for Walgreens to earn 46 cents per share and generate about $15.08 billion in first quarter revenue.
As a response to its drop in income for the quarter, Walgreens today said it plans to slow the opening of new stores to save $500 million. It said doing so is a response to the current recession.
The drug chain says its selling and general expenses grew 9% in the quarter as it opened 212 new stores, and profit margins dipped due to greater expense provisions.
Sales at its older stores grew 1.7 percent, with prescription revenue in older stores growing 2.6 percent. Front-end revenue, or sales of nonprescription products, was flat compared with last year.
The company said prescriptions filled in its stores grew 3.7 percent during the quarter, while industry data has showed falling prescription levels for its rivals. In total, a significant 66% (which is both good and bad) of Walgreen's quarterly revenue came from prescription sales.
As a result of the new store opening expenses and the current recession, Walgreens president and chief operating officer Gregory Wasson said in a statement today that the drug chain will in fiscal 2010 slow its organic store openings to a rate of 4.5 to 5 percent, with growth of 2.5 percent to 3 percent in fiscal 2011. In July of this year the company said it would slow the pace of store openings down to 5 percent in 2011, from 8 percent. The reductions are expected to save the company a total of $1 billion in annual spending, according to Wasson. Organic store openings means opening new stores but not including acquisitions. We doubt Walgreens is planning any acquisitions in the near-term.
Walgreens currently operates 6,630 drugstores in 49 states. The chain had sales of $59 billion in the 2008 fiscal year. It said today plans to increase its store count by 475 stores in fiscal 2009, which ends in August of next year. At its annual investors day conference in October Walgreens announced s number of new strategies for 2009, which you can read about here.
Just a few months ago, Walgreen's made a counter-bid to acquire the Northern California-based Long's Drug chain following a deal made between Long's and the CVS drug store chain in which CVS said it would acquire Long's. Not too long after announcing it would make a counter-bid against CVS for Long's, Walgreens announced it has decided to drop that offer and plan. CVS is in the process of acquiring Long's.
That decision by Walgreen's was a good one in our analysis in terms of its current challenges because if it did buy Long's it would currently be having an even tougher time making its revenue and income keep pace with its expenses. That decision however, or the initial one to make the counter-bid for Long's, apparently wasn't a good one for now-former Walgreens' CEO Jeffrey Rein, who resigned on October 10, just two days after the Illinois-based drug chain withdrew its counter-offer to acquire Long's. Walgreens said today it plans to name a new CEO in early 2009.
As we reported earlier today, Walgreens has made three new executive hires, which it confirmed to Fresh & Easy Buzz today. Those new hires include former Tesco Fresh & Easy Neighborhood Market co-vice president of operations Brian Pugh, who left Fresh & Easy in September of this year.
Pugh has been named to the new position of vice president of store development at Walgreens. In that position he is charged with further developing the food, grocery, household goods and related categories for the drug chain.
Walgreens v. Tesco's Fresh & Easy: A non-valid analogy -- if made
In today's piece about Brian Pugh's hire by Walgreens, we commented that his new position at the drug chain has occupational and operational synergies for him personally, regarding his previous position at Fresh & Easy.
Many may want to make an analogy between Tesco Fresh & Easy Neighborhood Market USA's recent announcement that it's cutting back its opening of new stores and postponing its Northern California market launch and today's announcement from Walgreens that it also is doing so.
However, other than the fact doing so will help both chains to conserve cash during the current economic recession, it's our analysis that the comparisons and analogy stop there for a number of reasons.
First, Walgreens is a drug chain and Fresh & Easy is a food and grocery chain. Drug chains are hurting far more from the recession than grocery chains are. In fact, chains that offer food at a discount such as Wal-Mart, Aldi USA and some others are doing well in this economic downturn, as shoppers shop where they perceive than can get the best deals.
Tesco's Fresh & Easy is positioned as a no frills, everyday low price format. As a result it should be doing much better than it is in the current recession, just like similar positioned food and grocery retailers are doing. It isn't, which is primarily why it is scaling-back its store expansion program at present.
Drug chains like Walgreens sell much more recessionary-influenced (negative) products than grocery stores do. These products includes prescription drugs and health and beauty care category items, which make up the majority of Walgreens' overall sales. (Prescription drug sales alone are 66% of Walgreens' total sales.) The stores sell some food and grocery items but they comprise only a small share of total store sales.
Additionally, there currently is a prescription drug price war going on among drug and discount chains led by Wal-Mart's price cutting on generic drugs. Even though prescription drug sales were up for the quarter at Walgreens, generic drug profits are down for all retailers offering pharmacy services. [For an interesting analysis on the generic drug price war you can read this piece from today's Wal-Street Journal.
Second, unlike Walgreens -- which in addition to being a drug rather than food and grocery chain is a mature chain in terms of store count and market region penetration in the U.S.; it operates 6,630 stores in 49 states and has been opening hundreds of new stores a year for the past few years -- Tesco's Fresh & Easy is a start-up grocery chain with only 104 stores at present, which is nearly 200 less than the company originally said it would have open by now.
In fact, Walgreens is in our analysis overstored in some regions of the U.S., which is in part why we think it has decided to focus (the Brian Pugh hire) more on developing food, grocery and related category sales in its existing and new stores. The time is soon coming to an end for the drug chain when it can count on significantly growing its sales by opening new stores. At some point -- and we think having 6,630 stores in the U.S with hundreds more in the pipeline. is getting near that point -- a chain reaches the point where new store growth can't be its primary sales driver (and profit driver either) because the stores in most market regions begin to cannibalize sales because they are just to close to one another geographically. We think Walgreens is almost at that point.
Therefore, developing organic, same store sales through consumables and related category developments, along with perhaps some new format development like the drug chain is looking at by opening smaller footprint stores, is a logical development in our analysis, as is going international, which is something Walgreens has no plans to do at present, as far as we are awre.
Lastly, unlike the mature Walgreens, in addition to its being a less recessionary format and being a mere start-up with only a shade over 100 stores currently, Tesco's Fresh & Easy hasn't even gone beyond three market regions --Southern California, Southern Nevada and Metropolitan Phoenix, Arizona -- as of yet with its small-format, convenience-oriented combination grocery and fresh foods markets. As a result, cutting-back its new store opening program, which includes postponing for at least the second time this year its entry into the Northern California market, even in the current recession isn't a good overall sign for the retailer.
The reason we say this is because the logic for say postponing going into Northern California, where Tesco has leases signed on nearly 50 store sites and is in the process of remodeling and building stores at many of those locations, is that when things get better with the economy it will make more sense to open those stores.
But since United Kingdom-based Tesco is paying monthly leases, as well as putting out cash for the construction costs on many of these near 50 stores, we question the real reasons for postponing the launch. Our analysis is its not so much the economic recession, which ironically finds Northern California as one of the best-off regions in the U.S. although it too is hurting, but rather part of an overall crisis in confidence within Tesco as to the performance of Fresh & Easy to date, along with a bold move to conserve cash. Why else make a decision to conserve cash by cutting back on new store openings despite the fact that with a shade over 100 stores operating at present the chain is only at about one third of where Tesco said it would be as recently as late last year by this point in time? Tesco also is slowing the pace of new store openings in its three existing markets in addition to postponing the openings of its Northern California region stores.
From a potential-for-success standpoint, it's probably wise Tesco has put the brakes on its rapid new store growth with Fresh & Easy based on current chain performance and confidence levels. However in terms of its investment in Fresh & Easy, doing so does play havoc with the company's sales and profit targets for Fresh & Easy Neighborhood Market USA, which is something Tesco analysts in London and on Wall Street will soon start pointing out much more regularly we believe.
>Related Story: Monday, December 22, 2008: Breaking News: Mega-Drug Chain Walgreens Hires Former Tesco Fresh & Easy USA VP of Operations Brian Pugh For New VP of Format Development Position
Breaking News: Mega-Drug Chain Walgreens Hires Former Tesco Fresh & Easy USA VP of Operations Brian Pugh For New VP of Format Development Position
Pugh, who abruptly left Fresh & Easy Neighborhood Market USA this summer, will focus on growing the consumables and related categories, such as food, groceries and household goods, in his new executive position at Walgreen's.
Walgreen's has been adding more food, grocery and household items to its drug stores over the couple years, as well as increasing the categories sku counts and promoting them more in recent months during the serious U.S. economic recession. Pugh will focus on increasing the consumables and related category development in the Walgreen's stores in his new corporate position.
Earlier this year Walgreen's also said it planned to create a new, smaller-format Walgreen's store. Typical Walgreen's drug stores are about 15,000 -to- 20,000 square feet. The new, smaller-format stores will be about 10,000 square feet -- and even smaller in some cases like those stores designed for dense urban regions; cities like New York, San Francisco and others.
The drug chain already operates some smaller-format stores in cities like San Francisco, where the available space and real estate costs in numerous neighborhoods make it logical to do so. However, those stores are basically scaled-down versions of a typical, bigger, Walgreen's drug stores. The new, small-format Walgreen's in most cases will be of a bit of a different, customized, format compared to these smaller versions of the basic Walgreens stores.
Although he was primarily hired to focus on the consumable and related categories overall for Walgreen's, Pugh's experience in small-format retailing also will be utilized by Walgreens as it roles out its new small-format drug stores selectively in the U.S.
Pugh, came from the United Kingdom with Tesco Fresh & Easy CEO Tim Mason and a number of other former British Tesco executives to start up Fresh & Easy Neighborhood Market USA in Southern California. He was the sole senior vice president for operations for Fresh & Easy until Tesco transferred its former CEO of Tesco-Lotus, the company's Thailand division, to Fresh & Easy Neighborhood Market headquarters in El Segundo, California to share the title and duties of senior vice president of operations with Brian Pugh.
Both men held the title co-senior vice president for operations until September of this year, as we were the first publication to report in this piece: "Key Personnel Breaking News: Co-Vice President of Retail Operations Brian Pugh No Longer Employed At Tesco Fresh & Easy Neighborhood Market," Pugh suddenly left Fresh & Easy.
Tesco's Fresh & Easy has never commented publicly on the reasons for Brian Pugh's leaving the grocery chain. Additionally, Fresh & Easy Buzz has been the only publication to date to write about it.
In addition to hiring former Fresh & Easy executive Brian Pugh, Walgreen's also made two additional new hires to its senior corporate team.
The drug chain hired Colin Watts as vice president and president of the Walgreens' Health and Wellness disease management business, which helps patients coordinate their care, continue treatments and practice healthy behavior. He is the former president of Johnson & Johnson's McNeil Consumer Healthcare Worldwide business and most recently worked as vice president and general manager of the U.S. business of Campbell Soup Co.
Additionally, Walgreen named Jeffrey Zavada, a national vice president of health insurer UnitedHealth Group Inc., as vice president and chief sales officer. He will be responsible for selling health services to health insurers and other health plan sponsors.
A Walgreens' corporate spokesperson has confirmed the drug chain's hiring of Brian Pugh, as well as the the two others, to Fresh & Easy Buzz.
Tesco's Fresh & Easy Neighborhood Market has been following a retail store location strategy, which we call "critical mass," that is modeled strongly on the strategy used by drug store chain giant Walgreens.
For Fresh & Easy that strategy is to open numerous stores within a short distance of each other in specific market regions like Southern California, Metropolitan Las Vegas, Nevada and in the Phoenix, Arizona Metro region market. Walgreens uses this strategy near nationwide in the U.S.
Tesco's Fresh & Easy also has been co-locating many of its small-format, combination grocery and fresh foods stores next to or near Walgreens drug stores in both existing and new shopping centers in its Southern California, Southern Nevada and Phoenix, Arizona region markets.