Monday, December 29, 2008

Tesco's Fresh & Easy, 'Food Deserts' and WIC Vouchers; A 'Year-End' Analysis & Commentary

Fresh & Easy Buzz has written often this year about the concept of "food deserts," which are primarily urban, inner-city neighborhoods underserved by grocery stores that offer a good selection of fresh foods and groceries at affordable prices, but also include underserved rural communities as well.

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.


Unknown said...

I heartily agree with the position that this chain should take WIC vouchers, I however disagree with the statement that F&E is rejecting "free money". The cost to carry WIC items would be the same regardless of whom buys the items. The profit margin for the grocer is the same irregardless if the customer use WIC or not. Accepting WIC would increase "sales" but not the profit margin on the items.

Another point...WIC not only restricts what is redeemable, WIC also restricts what brands they accept. This could be a major factor why F&E does not accept WIC. If the chain wants to promote its own 'generic' store brand, then it would have to carry an additional major brand just to accommodate WIC clients. Accepting WIC would bring more customers into the store, but those same customers may generate less ‘profit’ because of the items that WIC forces them to select.

Again, I agree that F&E should accept WIC, but in reality its not as easy as it seems on the surface from a grocer point of view. Businesses don’t operate because they want to be “ethical and moral”. They are in it make a profit. When accepting WIC becomes more profitable then not accepting WIC, F&E will change direction on the issue.

Fresh & Easy Buzz said...

Thanks for your comment russel.

We used "free money" only to emphasis a point -- that not taking WIC Vouchers is essentially turning down sales -- which it is.

While the profit margin is the same for a grocer regarding WIC or cash, the profit margins on many of the items allowed by the government with WIC (lost sales if a retailer doesn't take WIC) -- infant formula, whole grain cereals, for example -- are very healthy ones. Therefore by not accepting the vouchers, the retailer that refuses them is refusing added sales in general, and in a few specific cases that's lost sales on items with higher than average margins. A double no-no for any good retailer.

For example, if you compare infant formula category sales in two stores in the same low income neighborhood -- one store that takes WIC Vouchers the other that doesn't -- you will almost always find much higher sales at the store that accepts WIC. For us that makes good enough economic sense to accept them (regardless of additional arguments to do so), as it is for the over 99% of U.S. grocers who take WIC.

You would be stunned to know how much $$$'s sales of products purchased with WIC coupons can add to the annual gross sales of a supermarket chain, particualrly one that has numerous stores in lower income neighborhoods.Food retailing is a penny-profit business. All added sales (at a profit) are needed.

It's no mere accident that pretty much every supermarket chain and independent grocer in the U.S. accepts WIC Vouchers. when virtually every supermarket chain and independent shares a practice like accepting WIC Vouchers, we think it is only logical to wonder about the maybe 1% that don't, even from a completely rational economic basis.

Lastly, U.S. grocers have always operated with more than mere sales and profit margin in mind and practice. They do this because they know doing things like accepting WIC vouchers from poor mothers -- and being a part of the food assistance system in the country -- is just plain good business. They also do so because grocers are a part of the community they serve, be they Wal-Mart and Safeway or the one store Frank's Market.

In fact,America's supermarket industry has historically, and to this day, played a major part in the WIC program. When the federal government was debating a couple years ago adding fresh produce to the items that can be bought with WIC, the supermarket industry, through their trade associations, testified on Capital Hill in favor of new legislation adding fruits and veggies to the allowable items. Why? Added sales primarily, doing the right thing second.

There is a long relationship between the U.S. government and the food retailing industry when it comes to food assistance programs like WIC and food stamps. In fact, the supermarket industry has a voluntary guideline that accepting both WIC and food stamps are part of industry good business practices.

Doing so also makes good sales sense. Wic Vouchers are merely another way to pay for food.So in that sense, refusing them is like refusing "free money."

And in fact they do not cost any more to handle than a check. And they cost less to handle than credit cards, which Fresh & Easy takes, because the grocer does not pay a bank fee for WIC Voucher purcahses like it does for each consumer credit card transaction, which is the case with Visa, Mastercard, ect.

Thanks for participating...We appreciate your point of view.

Fresh & Easy Buzz said...

PS: russel: Your point about the store brand emphasis, ect. is a good one.

The explanation we've received from Tesco Fresh & Easy in the past though is that the reason they don't take WIC is the same reason they don't take any type of paper checks or manufacturer's coupons -- because doing so doesn't fit with their reduced handling of paper policy (part of low overhead model) by store employees. And -- that's there right. We just think it's bad operations policy to not take WIC, as you said you agree with. It's sales constriction. We also thing it's bad community relations.

One problem with it is that since shoppers can't buy the store brand with WIC, and since F&E doesn't take WIC at all, it's a complete lose-lose for the grocery chain. Also, can tell you from experience that WIC Voucher shoppers also spend cash (and food stamps) in the stores they shop that accept WIC. After all, the WIC items are restricted. So, Fresh & Easy not only is losing out on WIC sales, it's also losing out on the incremental food stamp (which it takes) and cash purchases these shoppers make.

From experience very few shoppers just use WIC Vouchers on a shopping trip. Is usually a combination something like this: about 40% of total dollar purchase with WIC. About 40% with food stamps...the rest cash (non-food items)...

That's another reasons grocers like WIC.

Unknown said...

thanks for responding...

Agreed with most of your points. However I think you are giving grocers to much credit in the ‘do the right thing’ category. For any business to run effectively (profitably) it has to be neutral when it comes to feel good issue. Supporting the expansion of WIC items is purely motivated by increasing profits or increasing ones position above a competitor. I don’t think this conflicts with any of your arguments, I’m just saying that if it became a liability to accept WIC and a grocer could drop out of the program without losing customer share, they would likely do so. Since they can’t, they can honestly say that they support WIC because its good for the community..and it is.

Thanks for clarifying the reason F&E does not currently accept WIC (paper handling issues). This isn’t as simple as it sounds to correct. Although WIC is an extremely successful program from all points of view, it does have two major obstacles. First, from the client point of view, selecting WIC approved items can be quite confusing. Supermarkets that I’ve been to do a very poor job of identifying “WIC approved” items. Customers are frustrated. Second, the check out process is a major time consumer for the grocer perspective. Vouchers for WIC are itemized. This means that each product has to rung up as separate transactions. Milk on one voucher, formula on another, eggs and peanut butter on still another. Add to this the confusion factor ‘sorry, this is not a WIC item’ and you get delays at the check out (for these reasons, the rise of the WIC Only store model has been phenomenal) If F&E’s policy is to reduce paper handling, not accepting WIC logically follows. WIC could make this a lot easier if they did away with the paper check model and issued debit cards.

Lastly, accepting WIC is an ‘all in’ proposition. A grocer can’t be WIC authorized by just selling the high profit WIC items. They would have to carry the highly profitable milk and baby formula, and low/no profit peanut butter, cereal, and tuna. How can peanut butter be a low/no profit item? Because WIC forces the grocer to carry an approved size and brand. If I am grocer X and I have my own store brand that I sell for less, WIC forces me to sell a brand that is higher priced but less profit margin. The majority of my customers are value shoppers (WIC clients are not, that’s a proven fact, again see the WIC Only store model) and will never buy the WIC approved brand because it is priced higher than my store brand. If you are a large chain this does not factor as much because you have more shelf space and sales and coupons can make all products competitive. For F&E this may not be an option. Shelf space is limited and their brand may offer a higher profit than the WIC accepted brand.

It would interesting to see how F&E addresses this issue down the road because they should carry WIC approved items if they want to support their target communities.. But will they have the backing of the ‘grocer association’ if they lobby to loosen the brand restrictions opening the door to WIC accepting more store brands? Maybe not, because this would open the door to an aggressive competitor that can steal market share. (btw I’ve never been to a F&E, none are yet open if San Francisco).

Anonymous said...

It is "free money." If a store brings in $1,000 in one week from WIC vouchers, that's 1-k more than it would bring in by not taking them. It takes no more effort to process WIC at the checkout than it takes to give back change for a $6.72 purchase paid for by a $20. The vouchers are processed by supermarkets right along with checks. There is no special handling. So, it's free money if you don't take them and then do for sure. I managed a supermarket for years. We did about 15-k a week in WIC. Weekly sales of 600-k. That 15-k paid for one or more employees.

Anonymous said...

WIC has changed the was you purchase groceries with WIC checks... you can buy any brand of what is on the check (except certain items like formula or soy milk). So F&E wouldn't need to carry special brands just for WIC customers, hopefully they will begin to accept them soon! There is a F&E store right around the corner from my house and I would love to shop there instead of the WIC only store in my neighborhood, which carries very strange brands I've never heard of yet charges at least double what I would expect to pay in the regular grocery store, all so they make a HUGE profit from our government.

Anonymous said...

After doing some research for my own business model, I have discovered that CA has placed a moratoriam on any new wic vendors. This may also be a factor in why F&E doesnt accept WIC- although this was recently placed into effect, if there was knowledge of this in the wind it may explain why the company failed to get licensed to be a vendor.

Fresh & Easy Buzz said...

Anon August 25, 2011 2:59 AM

The executive director of California's WIC agency told us a long time ago that Fresh & Easy Neighborhood Market is licenced to except WIC Vouchers.

In fact, at the time she was under the impression Fresh & Easy was taking WIC at all its stores in California; she even mentioned it in a speech at a food industry conference in 2009.

Additionally, Fresh & Easy does except WIC at one store - the unit in South Los Angeles.

A source at the chain also tells us Fresh & Easy plans to except WIC at the store opened yesterday in San Francisco's Bayview-Hunters Point neighborhood.

We first suggested back in 2008 that Fresh & Easy would be making a big mistake by not excepting WIC at the Bayview store when it opened it, as is the case at many other locations.

Fresh & Easy is not excepting WIC at the Bayview store yet though, which suggests it hadn't planned on doing so. However, we happen to know, since we've heard from many residents of the neighborhood and a politician or two in San Francisco about our extensive coverage of the topic, that a number of these folks have prevailed on Fresh & Easy to do so at the store.

If you type in "WIC Vouchers" in the search box at the top of the blog (upper left corner) you can see our numerous stories on the topic.