Wednesday, December 3, 2008

Tesco Opens its First Two California Fresh & Easy Stores Outside of Southern California in the Central Valley City of Bakersfield Today

New Markets News: California's Central Valley - Bakersfield

Tesco opened its first two Fresh & Easy markets in California located outside of the Southern California market region today in the Central Valley city of Bakersfield in Kern County.

The two stores, one at Olive Drive and Jewetta Avenue in northwest Bakersfield and the other at Panama Lane and Stine Road in the city, opened early this morning with a grand opening celebration hosted by Fresh & Easy Neighborhood Market CEO Tim Mason and the Mayor of Bakersfield, Harvey Hall, among others.

CEO Mason greated shoppers at the Olive Drive and Jewetta Fresh & Easy with a "Let's go shopping" greating as the doors opened this morning, according to people in attendance we talked with today.

Fresh & Easy Neighborhood Market chief marketing officer Simon Uwins also was in attendance at the Bakersfield store grand openings this morning, along with other company executives.

Bakersfield is a new and different California market region for Tesco with its small-format, convenience-oriented Fresh & Easy combination grocery and fresh foods markets.

Unlike Southern California, where Fresh & Easy is headquartered and has about half of its about 104 markets, Kern County is a primarily agricultural-based region, along with being one of the top oil producing areas in the United States.

Average incomes are lower in Kern County than in Southern California, and with a few exceptions, like Orange County, the people of the Bakersfield region are much more socially and politically conservative than the residents of Southern California are. Post-high school educational levels also are lower overall in Kern County and elsewhere in the Central Valley than they are in Southern California.

Food and grocery prices also are lower overall in Kern County and in California's Central Valley than they are in Southern California. And even in good economic times, Kern County consumers, who tend to be far more meat and potatoes than they are ahi tuna and arugula, expect a deal at the grocery store.

As a result, it will be intereting to observe how Tesco's Fresh & Easy does in the new market, particularly since to date the retailer has been emphasising its specialty foods side far more than it value-based grocery side, in our analysis. Value is key in the Central Valley.

The two Fresh & Easy markets that opened today in Bakersfield are the first of nine stores Tesco has planned for Kern County thus far. An additional five of those stores will be located in Bakersfield, for a total of seven in the city thus far. The other two Fresh & Easy markets are set for the nearby Kern County cities of Wasco and Delano, both of which are fairly rural towns.
Bakersfield is the county seat, with a current population of about 330,000. Kern County's population is about 650,000.

The additional seven Fresh & Easy locations in Kern County thus far are:

>Buena Vista Rd. & White Lane, Bakersfield
>California Ave. & Stockdale Hwy, Bakersfield
>Coffee Rd. & Hageman Rd., Bakersfield
>H St. & Planz Rd., Bakersfield
>Brimhall Rd & Jewetta Ave, Bakersfield
>Cecil Ave. & High St., Delano
>Hwy 46 & Griffith Ave., Wasco

Fresh & Easy emphasised a bit of local marketing this morning at the grand opening of the two Bakersfield stores, something Fresh & Easy Buzz has been saying since early this year the retailer needs to focus on and emphasis more.

As part of its grand opening promotions, the stores featured Grimmway Farms brand fresh carrots. Grimmway Farms is based in Kern County, and the company's vice president of marketing, Phil Gruszka, attending the Bakersfield store grand openings this morning.

Grimmway Farms supplies all of the carrots to Tesco's Fresh & Easy. And of course, when it comes to fresh produce, much of it comes from California anyway, so local is as local does. However, we think it smart for Fresh & Easy to take advantage of local producers this way -- something it should do more of and do so in a more strategic and customized way, as we've said often in the Blog.

The Grimm brothers, who were actually far from grim, according to people who knew them, began their family business in Kern County more than three decades ago. Today, Grimmway Farms has grown to become the largest grower, producer and shipper of carrots in the world. The Grimm family still owns and manages the company.

This morning during grand opening ceremonies, Fresh & Easy Neighborhood Market CEO Tim mason said: We're opening a store a week, depending on how the economy goes," adding the company is taking a flexible approach because "the world is in a different place." By that MR. Mason is referring to his recent announcement that Fresh & Easy is cutting back the rapid pace of its new store openings, including postponing its launch into Northern California, because of the current recession and financial crisis.

Opening a store a week is about half of what the grocery chain has been doing since the first batch of stores opened in November, 2007. Based on our analysis Tesco's Fresh & Easy has averaged a new store opening about every three days overall since November, 2007.

Opening about one new store a week works out roughly to what Tesco plc. CEO Sir Terry Leahy said yesterday in a company-produced Q&A-style video broadcast over the Tesco Web site as part of the United Kingdom-based retail chain's third quarter sales reporting.

Yesterday, CEO Leahy said the company would open 500,000 square feet of new Fresh & Easy retail space (stores) over the next year. That works out to about 40-50 new Fresh & Easy stores, since the markets average 10,000 -to- 13,000 square feet each in size. If the retailer opens one new Fresh & Easy store a week from the rest of December, 2008 (taking the Christmas holiday into consideration) to the end of 2009, that would work out to about 50 new stores or so, right in Sir Terry Leahy's range as he described yesterday.

Based on our information, we believe the retailer will open all nine Kern County stores in 2009, plus about eight in Fresno, along with new stores currently in the pipeline in the existing markets of Southern California, Nevada and Arizona.

Since the Bakersfield and Fresno region stores would total 17 Fresh & Easy markets, and we know of at least 15 new stores in the current pipeline for Southern California, Nevada and Arizona, we wonder if any Fresh & Easy stores will open at all in Northern California? Do the math, 17 in Bakersfield and Fresno, about 15 so far in the three existing markets, which equals 32 new stores. That means about or fewer than 20 remaining stores for the 2009 500,000 square feet (or about 50 stores maximum) that Sir Terry Leahy said yesterday would be opened in 2009.

Of course those 20 stores, or more or less, could be opened in Northern California. However, we've identified 46 Fresh & Easy locations in Northern California thus far, 37 of which have been confirmed by Tesco's Fresh & Easy.

Additionally, the Fresh & Easy Northern California distribution center in Stockton, California is nowhere near being completed. Fresh & Easy Neighborhood Market CEO Tim Mason has said no Northern California stores will be open until it is completed.

From an operational, sales and performance standpoint, which just about covers everything, it is our analysis that Fresh & Easy isn't ready yet to launch into Northern California. Therefore if it does postpone its launch completely in 2009 we think that would be good for the grocery chain overall (especially its employees and Tesco stockholders), assuming it uses the resources and time saved from the expansion to improve same store sales performance in its current markets, to include Bakersfield and Fresno when it opens its stores there as well.

Meanwhile we will be paying close attention to how Fresh & Easy plays in Bakersfield, which in addition to being a major agricultural and oil producing region also is known as Nashville West for its country and western music scene and history of producing country music legends like Merle Haggard, Buck Owens and others. There's even what's known in country music as the "Bakersfield Sound."

It is in this regard we offer Tesco's Fresh & Easy some free local marketing and merchandising advise for the Bakersfield market region -- it would be an inexpensive, smart and savvy local marketing touch to play country and western music over the Bakersfield stores' music systems rather than rock, hip hop, classical, indie or other styles.

[Editor's note: The Bakersfield Californian newspaper, the major daily in the city, also covered the Fresh & Easy store grand openings today. The story includes a number of photos of the stores. You can view the photographs and read the report here.]

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